Dodged a Bullet

Just spent an hour on the phone undoing a trade that never should have happened.

This goes in the “if it’s too good to be true” file, and I should know better.

For those who trade in options, especially thinly traded options, you’ll know how frustrating it is to watch the screens and see good opportunities, only to have them yanked away as soon as you try to act on them.

I have watched the former Yellow / Consolidated Freightways / Roadway trucking stock since before it went Chapter 11, and have the scars to prove it.  Now that the debt the merger and private equity boys loaded it with has sunk the company, a new stock, YRCW rose from the ashes.

Unlike so many companies whose absence really wouldn’t change the world, if all those trucks actually stopped running, we’d be in serious trouble.

So I’ve been watching the stock and thinking about adding on weakness, if for no other reason than to average down from the obscene cost basis I have in the handful of shares I got from the several thousand I started with.

In short, I think the new version of the company will survive and return to profitability.

So imagine my delight when I thought I saw the opportunity to own the stock for several dollars less than its current trading price!

There were listed options, fed by the options exchange data feeds, which showed a huge bid/offer (you could drive a fleet of trucks through it).  I’m used to seeing this, and having my attempt to enter a trade result in no trade, but an immediate repricing of the options.  In fact, it’s happened so many times that I don’t even bother calling about the mispricing in the screens, but just enter a trade to force the computers to recalculate the price.

Today, to my amazement, the trade just went through!

I immediately called the options trading desk to ask why I got filled — was there something fishy about the stock. (For example, was it the OLD shares, and not the new ones?)  I was assured that since there had been a symbol change after the reorganization, and there was no asterisk on the option symbol, I really did have the position it looked like I had.

Then I tried to sell calls to offset the puts I had just sold.  No go.  Then I tried to sell stock to offset the puts.  No go.  Then I got on the phone with the traders again, and said they needed to talk to the exchange, because this just couldn’t be happening.  Half an hour later, I found it was the old (pre-reorg) shares that someone was going to deliver to me, in spite of having done the trade with the new symbol.

Then I lost it.  Some crook on the options floor was going to deliver me the old shares (worth four tenths of a cent each), but charge me $5,000!  I got the trade “busted” after quite a bit of hassle.

This is so different from the market I grew up in.

We once honored a $10 million bond trade we didn’t even know had happened, just because it was a price quoted on one of our phones.  The “trader” who answered the phone was a kid there as a summer intern, who thought he was being helpful when he picked up a ringing phone and told the person on the other end of the line how much GNMA 10’s were trading for.

Funny how I keep having to learn these basic lessons over and over again.  It’s also funny how sleazy the market has become, when, for a few thousand dollars, the exchange and the dealers would even consider not honoring a trade their computer system offered to the public.

Be careful out there.



One Response to Dodged a Bullet

  1. Don Nichols says:

    “This is so different from the market I grew up in.” Ain’t the the unhappy truth.

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