Jacob Bunge at The Wall Street Journal reports that a
trading blunder has cost BofA/Merrill nearly $10 million yesterday.
The details are a bit technical and murky, but the gist is
this: Yesterday was the day that the SPY ETF went ex-dividend, meaning it paid
out a 78 cent dividend to owners, and thus would be expected to drop by 78
cents at the same time. There's an options strategy that involves selling a
bunch of borrowed call options right before this drop, and then buying them
back afterwords... it's essentially shorting a whole bunch of calls on this 78
cent drop. It's evidently a controversial tactic to trade around dividends.
Apparently not all of the eligible options were properly
exercised, thus causing a significant loss.
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