Don't Ban Program Trading

May 1988

Victor Sperandeo, general partner of Hugo Securities Corp., and Robert A. Kanter, managing partner of Arbco Limited Partnership, while also naming no names, echoed such views. Sperandeo (whose expertise, like Kanter's, has been featured in Barron's), offered a case in point. "The following example expresses an illegal program. A program trader might buy options on a basket of stocks such as the S&P100 (commonly called the OEX). After buying call options, he later (not simultaneously), buys the stock in incremental steps, moving the market up in value. Before the close of trading he sells futures to hedge the stocks he previously bought. Since the futures sold become a hedge against the stock he has purchased, which has driven the market up, he then utilized his cash-out privileges in the options and exchanges or exercises his options for cash. He is left with hedged position and has manipulated the market..."

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