AIG DITM action on Friday

[BlueHorseshoe]

This is a question that someone else posted on another board. It probably won't receive an intelligent response there so I paste it here as I am curious as well .... what was going w/ AIG ITM options?

"I would be interested in thoughts/comments on something I observed on Fri. Dec 5. It appears that someone sold one contract at each available DITM strike for Jan, Feb, and MAY 04. Total vol for the day at each strike = 1. AIG closed at 58.63. There are Jan strikes at $5 increments from 20 to 50 that each have vol = 1. Feb, May are similar. My initial thought is that the Market maker may have gotten behind when the price dropped quickly in the morning and someone took advantage of a risk free arb opportunity. The market maker was only obligated to buy 1 contract at the advertised price and then adjusted. Is there some other reasonable explanation or strategy to explain what appears to me to be unusual activity. It occured to me that someone could be just trying to buy a high delta call expecting the underlying was going to bounce, but if so, why not transact all 20 contracts at one strike/expiration and save on commission? There was single vol's on the DITM Puts as well."

 

[bungrider]

commish has nothing to do with it. many brokers (i.e. IB) do not charge a min ticket fee for options

do you know if he was buying/selling those options?

seems to me it was some smaller guy selling deep ITM calls (and buying DITM puts) to create a DN stock position; thus when they sell stock they are technically short with those options (and w/o bullets) but i am not sure this is 100% legal per new SEC legislation (you know, the new bullet rule, one of many designed by the SEC to make our markets less free and open).

 

[ArchAngel]

May have just been a glitch with whatever you were using to look at the option montage.

I didn't get around to posting a message at the time, but I looked at the CBOE montage for AIG after your original post and the one contract volumes you noted on all those strikes were NOT shown - most of the strikes were zero, the rest had normal volumes.