Sears Holding - Options mispriced?

Discussion in 'Options' started by c0nan, Feb 24, 2009.

  1. c0nan


    I just found a trade that seems too good to be true. So i might have missed something. Please check this out. SHLD Sept 18. options with a strike price 35 are trading as follows: Calls 6.35 Puts 11. Stock price is 35.

    If I short stock, sell the put and buy the call I would make 465 till Sept. Risk free?

    Please comment...
  2. I have not checked this - but you know it cannot be possible.

    Are you certain the deliverable for this option is 100 shares of SHLD?

  3. MTE


    It's a hard to borrow stock so the options seem out of whack, but they merely reflect this fact.
  4. Strange.

    At first glance, those options appear to be standard, then I notice the June options are basically priced at parity - they are around $600 each and then all of the sudden, the Sept puts are around $1000, with the calls being $750 range.

    I do remember there being some stocks similar where the issue was either they were impossible/difficult to short, or you were charged a large rate for shorting those stocks. I'm not sure if SHLD was one of those stocks.

    I think there is somewhere a person can look to see if a contract is an adjusted contract, but I am not sure of the quickest way to lookup an individual contract right now.

    Also, would it be possible that a large dividend is expected between June and Sept expiration?

  5. MTE


    The contracts are not adjusted. Well at least not according to TOS, which usually marks the non-standard ones.
  6. A while ago someone else posted a very similar "free lunch" trade. I think the stock was also SHLD, but I am not certain.

    Anyway, it turned out that the stock was very hard to borrow and if you could there was an extremely high cost. As I recall around 30% annually.