The company put out a press release related to the unusual activity in the stock.
UNUSUAL PRICE AND TRADING VOLUME MOVEMENTS
We have noted the recent decreases in the price of the shares and the significant trading volume involved of Huabao International Holdings Limited (the “Company”). Save as disclosed below, we are not aware of any reasons for such incidence.
We have been recently notified by Ms. CHU Lam Yiu, the controlling shareholder of the Company, of her entering into a derivative transaction on 14 October 2011 relating to a long position of a monetary value equivalent to 94,736,842 shares of the Company with a contract period starting from 14 October 2011 to 13 January 2013...I have a simple question: what is the "derivative transaction" that Ms. CHU Lam Yiu entered into regarding over 94 million of her shares?
In my world all derivatives can be bifurcated into a series of forwards, put options and call options. (The bifurcation is alas not unique...)
Unless I am mistaken then she has either
(a) sold her shares using forwards in which case it is effectively a forward sale (she has just cashed out and used fancy language and derivatives to obscure this fact),
(b) sold the upside of her shares by selling call options or
(c) protected the downside of her shares by buying put options or
(d) some combination of the above.
All of those are bets against her shares in some form or other. Of course I can be mistaken, but it seems the CEO is betting against her own shares using derivatives.
I am also betting against her shares - so I have something in common with her.
But not much.
You see I am just a guy who reads public filings. She is the controller of the company and the world's youngest self-made female billionaire. She is a smart cookie too: took her company public via reverse takeover, sold a chunk of shares in 2008, and again in 2009 and again recently. She is, on some lists, the eighth richest woman in the world.
And she still seems to be betting against her shares. Mostly she sells at lower prices.
But whatever: I think we are entitled to know precisely the nature of the bet that the CEO has taken against her shares.
I am happy to disclose my bet: I am short. Ms. CHU Lam Yiu, it is your turn to disclose.