Cry babyA long time ago, All Options and its owner Allard Jakobs were banned from trading on Euronext. They returned in 2005 and they certainly did it in style. They traded against the rest of the market in a tiny option class called Getronics-Old (GTO). And lost millions. Legal procedures are still ongoing, and according to the last reports it will continue to do so for the next years. Strange enough, it appears Euronext has to compensate the market maker for part of the losses.

Getronics old option contracts

Getronics used to be a Dutch IT company with normal listed options tradable on Euronext. After a claim offering, the options were split in the standard GTN options (with block size 100) and the small GTO with block size 12. So far so good. However, the stock traded at pennystock levels and the board decided to go for a reverse stock split. Seven old shares would be melted in one new Getronics share. The options would be adjusted as well, the block size would be divided by seven.

This is were the fun started to kick in, especially in the GTO options with the small block size The new blocksize would be 12/7 = 1,71. This would of course be rounded up to 2. Compared with the normal Getronics options the block size would rise 16%. A different block size has some consequences for the price.

Someone did his homework

Enter Iain Somers. A clever dude trading for his own account at a small firm (Market Wizards). He bought 1200 deep ITM puts through a broker. He paid more than parity. Most sellers were happy to take a profit, but scratched their heads and checked Euronext’s policy. This ignited a buying spree of this put. At the end of the day, most traders understood the point. All Options, however, kept on selling without asking questions. They sold exactly an astonishing amount of 76.100 deep itm puts.

That’s a lot, especially because after the adjustment in line with the Euronext rules, the price of this put increased from 16.55 to 19.35. Even with a small blocksize, that’s a 2.55 million loss for All Options.

What’s new in 2009

Four years later this story isn’t dead and buried. After losing a first encounter in court end of april 2005, All Options started new procedures. Recently court issued a preliminary statement on the matter (in dutch). The surprising opinion of the court seems to be the exchange should compensate All Options a little bit for the loss. The level of compensation is still unknown, but court ruled the exchange should have halted trading for a while and inform poor little All Options how the rules would be applied. This court decision is not the end of the procedures. It will take another four years I would guess, as appeal is possible for both parties.