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Linsanity Breaches The Options Market

17 Feb 2012

How Linsane are you? Linsane enough to put your hard-earned money on the back of an unexpected Asian-American basketball phenom?

How Linsane are you? Linsane enough to put your hard-earned money on the back of an unexpected Asian-American basketball phenom?

Minyanville.com, a financial information-crossed-with-entertainment news Web site, has thrown together the Jeremy Lindex, in jest, comprised of companies that have benefitted or been a part of New York Knicks’ point guard Jeremy Lin’s rise from unknown Development League scrapper to the King of New York basketball. The Lindex, which has outperformed the S&P 500 by 2.5% over the last two weeks, is made up of companies like Disney (ESPN), Madison Square Garden, and even Ethan Allen, the furniture-manufacturer whose couch Lin had been sleeping on in his brother’s New York apartment for the past several months.

With no cure for Linsanity in sight, options-based specialists and structurers are having a hard time denying the viability of a Lin-based structure.

“The equity spikes in these stocks is hard to deny,” said Kevin Samborn, v.p., valuation and risk analytics at Sapient Global Markets in Boston, Mass. “We may not have a Lindex for real, but the knock-on effect is directly market observable. If you believe in Lin like I do, there’s no reason to shy away from the creation of new products, from exotic options to retail structured products to correlation hedge strategies, that play the recent craze. Right now, he’s way Lin-the-money, that’s all there is to it. The question you may have to ask yourself is, ‘How do I participate?’”

Want proof? Lin’s Knicks jersey has “been the top-seller among NBA jerseys since Feb. 4, and the Knicks have been the top-selling team over the last week, with five of the top 10 items sold by the league being Knicks jerseys,” as reported by ESPN.com. MSG stock has risen approximately 10% since Lin’s first start.

Stock-pickers may be kicking themselves for missing the wave over the past two weeks, but isn’t that what the derivatives market is for? Cheapen up a Lin-basket with a double no-touch structure, or buy and sell straddles on MSG with some nifty deltas, a strategist might say. After all, even if he doesn’t play well, won’t that increase volatility?

17 Feb 2012