FNM Sept 2.5P

Discussion in 'Options' started by newguy05, Aug 21, 2008.

  1. Anyone making a play writing the sept 2.5P? i know the company is insolvent but after the bloodbath this week, FNM is at 4.4, and sept OTM 2.5P is trading at 0.6 premium. That's pretty insane.....
  2. m22au


    In many / most circumstances, the 60 cent premium would be a lot.

    However these are not normal circumstances.

    FNM could be at or above $4.40 at the close on Thursday.

    It could also be below $1, if more bagholders wake up to the idea that shareholders may get zero in the event of a government bailout.

    People who buy the $2.50 put for 65 cents get known limited risk, and full participation if the stock falls below $1.85.

  3. Option traders do not leave their money lying around for someone to come along and steal it.
  4. m22au


    Very true indeed.

    The 65 cent premium is the sum of all market participants' thoughts on the volatility of the stock.

    To some, 65 cents may be expensive, and they are sellers, but to those who think the stock can fall much further, 65 cents is cheap.

  5. "Much further" translates to $1.9 as max risk though. That's if the stock goes to 0. Lets see if it drops another 20% today, what a crazy week ;)