Discussion in 'Options' started by KINGOFSHORTS, Feb 8, 2012.
Because tommorow will be very ugly.
Forgive the ignorance as I do NOT trade options. But if you are short puts doesn't that mean you are essentially LONG the stock? If so why will it be very ugly?...are you anticipating something?
DMND has earnings reports tomorrow, and as if the IV wasn't high enough already, They came out after the close today and announced that they were doing a shake up of the CEO and CFO, as well as restating their earnings for the last two years (i might be mistaken on the specifics). ANYWHO, the reason he says it will be ugly is this:
Say you sold, Ohhhh I don't know, the feb 35 puts. Well currently the stock sank down about 42.5% on the news above, down to about $20.5. IF the stock trades that low tomorrow (and I'm sure it will be trading terribly), then someone will either A.) have a huge loss on their hands, ie: about $1500 PER contract, for it will likely be trading near intrinsic value because it will be so deep in the money. OR B.) will get exercised against them and the short put writer will be put the stock at 35, while it trades at $20, give or take.
That's why it will be so ugly
Its also an example of why chasing the last nickel can kill you. The Strike 30 put was trading at 5 cents.
Thursday morning it will be trading at 8.62
That is a 17,240% increase from closing today.
wow yeah. and it did some volume, so someone's on the hook for that one...OUCH!! would never take the risk on a stock like DMND to pocket that five cents. no logic to me
Maybe stevebearman sold the puts to make up for his AAPL trade. Should I panic about my short position on Apple calls?
load up on DITM call for june...magic number will be 45. sprinkle a little pringle.
Thank for the explanation. As I said i do not trade options. I also obviously have no position in DMND so I was not aware of the internal turmoil.
Instead of Pringles from Procto & Gamble, they got a PROBE that really hurts.
I would love to make a play on this but I am afraid I am too late.
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