If you saw odd trading on Valentine’s Day and thought perhaps jilted lovers were the reason, more than likely it related to index options expirations on Feb 14. We did not hear mention of expirations on any major media outlet, but the data doesn't lie: everything pointed to option contract resets and a corresponding shuffling of institutional shareholdings. If you can lever more from derivatives on fewer shares held, that translates to a better return on assets. Does this happen? Show me a portfolio manager looking for lower returns on assets and I’ll show you a candidate for government office.

Just a little humor there. Anyway, there are two pressing IR questions: 1) How do you run an investor relations program when so much of what goes on relates to balances of assets and the insurance policies presented in the form of options and other derivatives? 2) If derivatives were responsible for sinking the credit markets, why would investors be using them more than ever?

Short answer to Question #1: We don’t make the rules; we just report on them here and give our best effort to helping you help your shareholders. So try not to report major news, don’t engage in outreach and don’t hold earnings calls – unless you’ve got bad news to report – when options expire or on the last day of trading in a month.

For Question #2: The problem was not the derivatives per se, but in the mix of assets that were being insured – so to speak – with derivatives strategies. In a weird sense, it’s even more advantageous to hold fewer assets for shorter periods of time.

Is there ANY good news, you ask? This isn’t bad news. In fact, you can exercise significant control as an IRO when the bulk of order flow is automated and hedged. It’s the rock rippling the stream concept.

Understanding this activity can be the difference between telling management

“I have no idea”

OR

“We don't think the market will respond much at first, but we’re likely to go into a prolonged slide after options because all these derivatives strategies will reset lower. Therefore, we’re going to retool our message to highlight core value drivers and concentrate our effort over the next quarter on long-term value investors.”

Which would you prefer?