It’s well understood that reading those filings is essentially rule #1 of tracking institutional ownership of stocks for issuers – but it’s also an effective way to track institutions exposure to options positions underlying stocks. In fact, without it, issuers may be missing an important piece of investors’ overall exposure.
Good case in point – OZ Management, L.P. recently fully liquidated a $578mm stake in CBS Corp (9.5 million Cl B Shares), between January and April of 2015, as per their filing. However, over the same period, OZ opened a stake of 47,000 call options, effectively giving them exposure to 4.7 million CBS shares, or $283mm. A good understanding of options positions is what distinguishes OZ’s stake in CBS from being seen as a “sold-out” position.
Ipreo published a guide to reading the tea leaves of options ownership in BetterIR in February 2015 – it can serve as a useful companion to looking at your options ownership and determining what exposure each investor with an options position has in your stock today.
An investor’s goal, at the end of the day, is to earn a return on investment through gaining economic exposure to the fortunes of one or several businesses. The public company structure is typically set up to offer this type of economic exposure to investors through tradable equity or debt securities. However, these securities aren’t the only ways to gain this type of exposure to a business – derivatives offer a myriad of different methods, anywhere from simple exchange-traded options to total return swaps, ETF’s, CDS, futures, forward contracts…the list is nearly endless, and of course consists of structures that do not involve the issuer of the underlying debt or equity securities in any way.
The investor relations function sets itself between the company and the investment community as an allocator of company and management time and resources, and through effective investor relations communication with the investment community, the company can help achieve a full and fair valuation. However, what obligation does the company’s management team have to the investor if the investor has economic exposure, but not through the company’s issued securities?