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I dont really care about the money I lost. I honestly just feel bad for this guy.
So some guy is referred to me. Really nice guy. 57 year old ex-hippie who now works in tech. Back in 1998 he bought 15,000 shares of a tech company for the few grand that is now trading in the $60-80 range. Hes been sitting on the actual stock certificates for the past decade.
So he brings them to me and I send them to our clearing firm (making sure the certs are in good order takes about a month on average). The stock on that day was trading at about $72/share. I suggested purchasing some puts with a 70 strike price just in case the stock went down (as stocks has been known to do in this market). He agrees and it costs him about $30k or so to do so.
So a month goes by and the restriction is lifted on the stock while the company is now trading at about $64/share. We exercise our puts and cash out at $70/share and I look like a hero. We start talking prudent retirement planning for the $1.1million this guy just got and begin investing it conservatively.
So today (about a month after we cashed out) I get a call from our margin department who just got a call from the aforementioned company's transfer agent. Turns out back in 2002 this stock went through a 14:1 reverse split...meaning the 15,000 shares my client thought he had was really only about 1,400 shares. Not only that but since we exercised enough options to cover the 15,000 shares, our firm was exposed to the tune of about $1million (or 13,600 shares). Naturally, our margin department goes into the open market and purchases enough shares to cover this position. Only problem is the stock is now trading at $76/share...so not only does our margin department liquidate my clients holdings to cover this purchase, but they liquidate enough to cover the $6 difference in share price as well.
Net profit to my client after all is said and done = $8,700. $2,000 of that is part of the profit from the portfolio I set up for him.
Believe it or not, I didnt really enjoy giving this guy a call today to inform him that the future he thought he had is kinda fucked.
So some guy is referred to me. Really nice guy. 57 year old ex-hippie who now works in tech. Back in 1998 he bought 15,000 shares of a tech company for the few grand that is now trading in the $60-80 range. Hes been sitting on the actual stock certificates for the past decade.
So he brings them to me and I send them to our clearing firm (making sure the certs are in good order takes about a month on average). The stock on that day was trading at about $72/share. I suggested purchasing some puts with a 70 strike price just in case the stock went down (as stocks has been known to do in this market). He agrees and it costs him about $30k or so to do so.
So a month goes by and the restriction is lifted on the stock while the company is now trading at about $64/share. We exercise our puts and cash out at $70/share and I look like a hero. We start talking prudent retirement planning for the $1.1million this guy just got and begin investing it conservatively.
So today (about a month after we cashed out) I get a call from our margin department who just got a call from the aforementioned company's transfer agent. Turns out back in 2002 this stock went through a 14:1 reverse split...meaning the 15,000 shares my client thought he had was really only about 1,400 shares. Not only that but since we exercised enough options to cover the 15,000 shares, our firm was exposed to the tune of about $1million (or 13,600 shares). Naturally, our margin department goes into the open market and purchases enough shares to cover this position. Only problem is the stock is now trading at $76/share...so not only does our margin department liquidate my clients holdings to cover this purchase, but they liquidate enough to cover the $6 difference in share price as well.
Net profit to my client after all is said and done = $8,700. $2,000 of that is part of the profit from the portfolio I set up for him.
Believe it or not, I didnt really enjoy giving this guy a call today to inform him that the future he thought he had is kinda fucked.
