The Fine Green Line
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Matthew Buckley Options University.com |
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Insider trading and kick backs. Two recent high-profile cases have exposed the behind-the-scenes maneuvering that occurs in the volatile and cut-throat world known as business.
The Galleon insider trading case is slowly expanding after already ensnaring executives from IBM (IBM) and Google (GOOG), while yesterday New York’s Attorney General Andrew Cuomo leveled antitrust charges against Intel (INTC) alleging unfair trade practices. This isn’t the first time Intel has faced charges of heavy-handed tactics. The company is fighting a $1.5 billion ruling against them by the European Commission and is going on year 4 in a lawsuit filed by Advanced Micro Devices (AMD).
The timing of Cuomo’s filing is interesting, considering the feds have been building a case against Intel behind the scenes, and states usually take a back seat to Uncle Sam. I’m sure Mr. Cuomo’s potential run for governor/senator/president/fill in the blank had nothing to do with it.
We will have to wait and see all of the evidence against Intel, but the initial indications are not flattering. Email exchanges between the CEOs of Dell (DELL) and Intel read something like a scene from The Soprano’s:
Michael Dell: We’re getting hammered by only using your product. We’re losing business.
Paul Otellni: The “cannolis” we’ve been giving you over the past couple years should more than make up for any inconvenience…
As Dell leaves the BaDa Bing, Otellni remarks to Paulie:
“That guy’s the best friend money can buy.”
It’s going to be interesting to see how this plays out. On one hand it appears that Intel is doing whatever it can to grow the business, gain market share, and deliver to the shareholders. That’s exactly what’s it’s supposed to do. After tumbling down the runway like Steve Austin to $12 a share in March, the stock hit over $21 in October. Oh, and by the way, they produce a solid product. During the same time frame, AMD has risen from $2 to just north of $6. Not a bad return in this David-versus-Goliath struggle.
On the other hand, it does appear that some of these tactics could be anti-competitive. Paying “rebates” to companies who only use their chips and pulling the rebates while threatening to withhold payment to companies that began using AMD chips is either good business or it’s illegal. As a political science major, I have one opinion. But as a guy born and raised in Jersey, I also have another opinion.
If an investor thinks AMD stands to gain from the feds going after Intel, they could look at buying an in-the-money call farther out. The wheels of justice turn slowly, especially in these types of cases. They could offset paying for this call by selling front month calls.
If an investor thinks Intel will continue to power ahead in the short term with this volatile market, they could consider selling a bull put spread. Selling the Dec 18/17 yields a credit of .25 and there’s a 67% probability of Intel being above $18 by December expiry, using at-the-money volatility of 30.23%.
Bottom line: Business is combat. There’s a winner and a loser. But even combat has rules and regulations that both sides are supposed to abide by. As we’ve seen in recent years, unfortunately not everyone fights by the rules and it can be painful for the side that does, especially if there’s no referee, or at least an impartial one, to enforce the rules. The decision a business leader needs to make is how they want to win. Historically, the side who emerges victorious is the one with their dignity intact.
Matthew "Whiz" Buckley is the Chief Strategy Officer of the Options University, the leading provider of options education for options traders of all levels. He is also the Managing Partner of Check6 LLC, a business-consulting firm specializing in leadership development, risk management, and strategic planning for Fortune 500 companies and related organizations. Whiz flew the F-18 Hornet for the U.S. Navy. He's a graduate of TOPGUN, has close to 400 carrier landings, and flew 44 combat sorties over Iraq. After leaving active duty he rose rapidly though corporate America, starting as Managing Director of Strategy at a Wall Street firm, to CEO of a financial media company. He is an internationally recognized speaker and combined his unprecedented experiences in the military and corporate America in the writing of From Sea Level to C Level.