Thursday, February 26, 2009

Ackman In Discussions To Nominate Target Directors, Sells 19.3 Million TGT Calls

Well, at least he didn't blow the 90% of AUM in his PSIV fund for nothing. In an 8-K just released, Ackman discloses he sold two sets of calls (not clear if new trades or unwinds) covering a total of 19.3 million TGT shares on February 10 and February 26, for which he pocketed $20,775,000. The first set of calls expires March 2010, which does not seem an on the run batch so it was likely a privately negotiated transaction. The second set of calls expires April 2009 and he pocketed a mere $145k for this sale. Judging by today's volume in April 2009 calls, these were likely some combination of the 25.00, 27.50 and 30.00 strikes.

As selling calls is a bearish bet with unlimited downside, the second transaction seems rather risky, as some other venegeful hedge fund manager (oh, there are a few), could easly run TGT's price up causing a lot of pain for the manager. Then again, these are covered calls as Ackman already owns 58.4 million shares of stock and option equivalent shares (purchased stratospherically higher). Bottom line is Ackman must be hurting big time to be playing with such amateur hour parlor tricks as covered call writing (at least it is not split strikes), unless he is merely selling existing calls in which case he must have booked massive losses due to alpha and theta.

The 8-K also carries the following cryptic language:
"Without limiting the generality of the foregoing, the Reporting Persons are currently engaged in discussions with the Issuer regarding the consideration by the Board of Directors of the Issuer of certain candidates proposed by the Reporting Persons as directors of the Issuer."
It is also kinda ironic to be nominated to the board of the company you are in effect shorting. Maybe he should have just shorted it out right from the very beginning and by now would have been able to buy it with the proceeds...

By the way, is it not a breach of some fiduciary duty or another to be short (through stock or options) the company you are about to become director of? Just asking... Sphere: Related Content
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Anonymous said...

Some investors wanted out of psIV...why they wanted to realize 90% losses is beyond me

It's not a covered call strategy, I guarantee you that

Anonymous said...

"amateur hour parlor trick"

are you in a bad mood? or just trying to punch above your weight?