The following is the OptionBT sighting of    "Gap Man".
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Title   :   "Gap Man"      Position taken   :     April 26,2001
Position Description   :
   Five Months out,
   type of spread = "Gap",
   a vertical call spread for debit,
   a vertical put spread for debit,
   equal counts
   1000 point spread.

Expiration/Settlement    :    September 21,2001 / Settlement = 939.57
Count   :                           1000 pairs
Credit or (Debit)   :            ($98,220,000)
Margin   :                          None     (Long Put Strike > Short Put Strike) and
                                                     (Long Call Stike < Short Call Strike)
Results   :                          Value of the combined spreads = $100,000 * 1000 = $100,000,000
                                        Less the debit = ($98,220,000)
                                        Net = + $1,780,000

Comments   :
  This fairly common "Gap Man" position is a tale of two traders. Each trader has the opposite side of this trade.
The first of these traders is the position of the lender. The Lender, as shown above, took home $1.7M for his generosity in loaning the borrower $98.2M.
The other trader, the Borrower, will have to pay back the loan plus "interest" for a combined total of $100M at settlement. In addition, the Borrower must maintain an astronomical amount of margin in order to put on the trade.

From the Lender's point of view no matter which way the market goes he cannot loose. This is because the $98.2M that he spent is less than the $100M "Gap" between the long calls and long puts.

From the Borrowers point of view this is a large loan on friendly terms even though he has to put up collateral in the form of $100M in margin.

It is not hard to visualize who the Lenders are but the Borrowers are another story. One speculation is that these Borrowers are Market Makers raising funds to cover positions that they see going against them in the near term. How wonderful it would be if this were true. Despite a good effort at attempting to define a correlation, to date there is no connection. Thus we have no idea what the Borrower did with the $98.2M which he had in his possession for the five months of this deal.

Let's hope the Borrower made the most of it.
It's nice to have "Buddies" like the "Gap Man" who will loan you $98M for a few months.
One more thought before you begin to think about becoming a borrower, the likelyhood is that the Borrower in this case probably had a seat on the exchange and as such probably didn't have to post the margin requirement.



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