The 300 Club

Yesterday I said:

"Today was the option expiration on the Comex, and those options which are 'in the money' and have not been settled for cash are now converted to March futures positions.

Depending on the size and distribution of those conversions we may see some 'action' in the front month because they are sometimes notoriously weak hands and will receive at least one 'gut check.'"

And a gut check to run the stops was very obviously delivered in the afternoon trading session at the Comex and across the monthly contracts.

This is remniscent of the 'Dr. Evil' strategy that got Citi warned and fined in Europe a few years ago. Memories of Citi's Eurobond Manipulation At the time one of the defenses offered by an ex-pat trader was 'in the US everybody does it.'

Large players can come into a relatively small market and drive the price by selling in size, running the stops which they often can see through positional advantage, and essentially bomb the market, manipulating the price in the short term to their advantage. The profit is made through derivative and correlated bets that depend on the price of the metal, index, or bond such as shorts on mining stocks, currencies, bonds, etc.

This is why the 'uptick rule' in stocks served a purpose, and why regulators are in place to keep an eye on big players with deep pockets and a far reach.

There were rumours circulating on Monday that the spike up in silver had been caused by Carlos Slim's mining company Minera Frisco having its hedges forcibly closed by J. P. Morgan for a $1.5 billion loss. I did not report that here because Minera Frisco is in the process of a stock offering as part of an acquisition for $1.2 Billion and is a publicly traded company in Mexico. Trading rumours in publicly traded companies is a dodgy business.

It *could* be true but it seemed more to me as a rumour designed to set up the post option expiry smackdown, and perhaps game the stock offering. Since Frisco is publicly traded one would expect that they and JPM would disclose the material loss.

And so there it all is.