Wednesday, April 26, 2006

BBH: What a Mess!

BBH opened down over 7 points today. After the initial shock it became crystally clear that we were hit with yet another contract adjustment. According to CBOE:

"Biotech HOLDRs Trust [...] has announced a cash distribution resulting from the merger of Chiron Corporation ("CHIR") and Norvatis AG ("NVS"). The distribution will be $7.66435 in cash per BBH share held of record April 28, 2006, payable May 2, 2006. The ex-date for the distribution will be Wednesday, April 26, 2006."

So, BBH closed yesterday at 181.40 to open this morning at 173.08. That's the per share "cash" adjustment (more or less). All the old options are priced off the "fake" underlying modeled after BBH+$7.66. Fine, fair enough.

Now here is my gripe: Forget the options, but the chart is now broken! We have a huge (and totally meaningless) gap between Tuesday's close and Wednesday's open and I'll bet most quote vendors won't "fix" the chart - because there's nothing to fix! After all, BBH is priced correctly.

What to do? Get your own charting software. Build it if you have to. Because you're in the business of making money, not giving it away.

Cheers,
/Dmitry

3 Comments:

At 2:13 PM, Anonymous Ralph said...

You're right about the shock. Fortunately your article made it to Google or I would still be scratching my head about the reason for the precipitous decline.

You're right about the broken chart, too. I don't do technical trading, but I think this will hurt BBH and it's underlying stocks just because of the apparent void which is actually filled with cash, not lost equity value.

Thanks for the info, Dmitry.

 
At 2:43 AM, Blogger procol said...

Dividends of all kinds should really be a manditory part of all charts. If they are not adjusting the stock price to normalize (in this case they can't) then the chart is , as you say , misleading at best.

Too complicated for them to display a DIV symbol or some graphic? Guess so.

 
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