It was a disappointment not only for avid NY Knicks fans, but also for investors who bet that ”King James” would join the NY Knicks. Yesterday, LeBron announced he will instead join the Miami Heat from the Cleveland Cavaliers. Madision Square Garden is a US-Listed company that owns the Madison Square Garden arena, Radio City Music Hall, the New York Knicks basketball team, the New York Rangers hockey club, and the MSG regional sports cable-TV networks. Shares in the company witnessed heavy speculation with volumes rising 5x the daily average ahead of LeBron’s decision. MSG shares fell 10% during the past two days.

What was more intriguing to see is the action in the options. Below are the calls & puts expiring in July and August respectively. The action in the July 20 & 22.5 calls is massive as investors speculated as to where LeBron will go. Compare this to the less active August calls and June ones (I don’t have the June ones here). Also worth noting is the tilt towards calls vs puts as speculators bought calls equivalent to triple the number of puts as is evident from the open interest figures. Thus, investors betting LeBron joins the NY Knicks have two reasons to be sad!

LeBron’s mom was the only one who knew her son’s decision beforehand. If she would’ve told you, you could’ve made money selling a ton of these calls. Of course you shouldn’t do that since it is an example of the type of ethical lapses we discourage and oppose here at Alpha Dinar!

 

Tags: Knicks, LeBron, Miami, MSG

This entry was posted on Friday, July 9th, 2010 at 9:15 pm and is filed under Weekend Edition. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.