And if you have written 10 million puts (100,000 contracts) and you are not hedged you will wind up owning 10 million shares.
And if you take delivery of five or more percent of a company it likely you have some intentions towards it.
You may however own them deliberately (selling puts with the hope they are delivered) or accidentally (selling puts with the hope of keeping the premium).
Indeed it likely there is some deliberate and some accidental ownership of the stock.
We know from various articles at the time his break-even was around $50. [This was corrected to $47 later as you will see.]
As the stock went up he restructured his position - some short, some puts.
In February 2014 he said that his position was much bigger than originally. To quote:
“We actually now have a much larger position notionally than we had initially. If it were to disappear tomorrow, we’d make a lot more than had it just blown up the day after I gave my last presentation.”We also have an idea of where his break even currently is. Recently he told Reuters this:
"We shorted it at $47 but because of option premium, borrowing costs, dividends, investigative expenses, our break even is around $31, $32,"You can do the maths. If it was a billion dollar position at $47 per share (and we know it was at least that) he was originally short 21.3 million shares.
His break even is now say $31.50 per share and he will make more money than originally - which means he is short at least 32 million shares (which produces the same result) and probably more than 40 million shares (which is what is required to make this a "much larger" position than originally.
My figuring is that Ackmans short plus put position adds up to something greater than 40 million shares. My guess is 42 million.
Now Ackman has many followers. There is Whitney Tilson (who is publicly short) and a host of Twitter gliterati who boast about being short. It is a fair guess that in aggregate they are short (say) 3 million shares.
This makes an aggregate short position of 45 million. This includes straight shorts plus puts.
The published short position is about 30 million.
As a conclusion we can guess that something like 15 million shares are not delta hedged.
Those puts are issued by someone who is going to take (or has taken) unhedged delivery of 15 million shares.
Given the number of puts exercised on Friday I suspect they have largely taken delivery.
Some of those shares are going to be delivered accidentally. The person sold puts in the hope they would not be delivered and when they are delivered they just sell the shares. This creates downward pressure on the stock. I think we saw that on Monday.
Some of those puts are sold by someone willing and able to take delivery. And most importantly wanting to take delivery.
Normally a new large shareholder has to disclose ownership at ten days (and that would be ten days after they take delivery).
And there must be some new fundamental long (or more than one) who sold those puts to Ackman. People sell a few million dollars of premium for speculation - but someone has taken delivery of hundreds of millions of dollars worth of shares - and in my experience they don't do that by accident.
We have had the first disclosure today - and it was a gentle one. UBS owns 6.4 percent.
I still think there will be another person. At least that is my count.
PS. There was a serious correction to the original version of this post regarding the ownership of the UBS stake.