Verisimilar Unexercised Call Options: Deceptive Shorting Combined with Negative Activism

Abstract

What if hedge funds needed to cut their losses on a financial security that was overpriced, but needed to position themselves to determine whether or not the security would either continue to rise, or experience a large sell-off? This paper explores the strategic side of hedge funds where the firm buys call options regarding the financial security and although St > K, the call options remain unexercised. Instead, the hedge fund sells the remaining shares, possibly in chunks a few days after. Does this happen at all, and if so, how often does this happen per annum? Is it possible to find out which firms or hedge fund managers behave and operate with an augmenting view of positive activism, followed by sudden negative activism the most?