-15-
to the Treasury bill options transactions, after discussing with
Mr. Illingworth the "general parameters" of such trading. Wilcap
decided which brokerage house would execute a particular options
transaction.
The options transactions did not occur on a regulated exchange
but instead were conducted over the counter.9 Current trading
prices for the option spreads, or the constituent put options, were
not published daily. There was no publicly available mechanism
through which a trader in Treasury bill options could ascertain the
current price of his positions. No steps were taken to insure that
Tandrill paid or received fair prices for its positions in Treasury
bill options.
All of the options transactions that Tandrill entered into
possessed the following characteristics: (1) They were part of
eight "vertical put" straddles or spreads; (2) all of the spreads
were opened and closed out in 1979; (3) the underlying commodities
were Treasury bills; (4) when the spreads were opened, all of the
puts were "in the money"; (5) all of the spreads were closed out
through "offset" before the date of issuance of the underlying
Treasury bills; (6) the options spreads were purchased as a unit
rather than as separate legs; and (7) the spread between exercise
prices varied from a minimum of .06 to a maximum of .125. None of
the trade spreads was profitable.
9 In 1979 there were three or four dealers who made a
market in over-the-counter Treasury bill options.
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