Does anyone know what' s goin on with this company? Enormous short positions in it, gov't inquiries, investigations, etc; yet Motley Fools rate it very highly. Maybe a straddle here?
OK! I'll leave myself open to a reaming here, but if I learn something it's worth it. It doesn't look to me like a straddle would be the right trade for this. If I understand correctly, the best time for a straddle is when Implied volatility is less than the Historical. That doesn't seem to be the case with ALD. Seems the options would be overpriced. Using an example of my Neanderthal way of figuring right pricing, I'd take the difference between the high/low of the last 60 days or so and divide that number by two. If the cost of the straddle is less, it's priced favorably. Using rounded numbers ALD had a high of 33 a couple months ago and a low of 28 last month. The diff is 5/2=2.5 Now if I look at the May options I can buy ATM calls/puts for a total of 2.90 which is higher than 2.50. That tells me the pricing is not favorable to a straddle. On the right track? Be gentle, it's early.
I see what you are saying. It seems to me though, that ALD has two BIG problems, the lesser of which is they are being investigated for "pretexting", and the larger of which is the alledged fraud on guaranteed loans. I can't say if there is any truth to any of this, and even if there is, the stock is already so heavily shorted that it might be that no one else can make a dime with a bet on a future drop in the stock. And of course if it turns out that there is no truth to any of these allegations, then there will be one GIANT short squeeze and I would think the stock would ROCKET up. I don't have the knowledge or guts to try a bet on it either way. And it really hasn't gotten a lot of press considering all that's involved.