But expiring worthless during a halt doesn't mean you win - you would most likely be assigned long the stock from the strike price, because if they are still halted, the stock is probably worth zero. You'd have to tie up capital for months in what is quite likely to be a total loss.
Not if the put is OTM by the time the halt happens. The cap requirement is not really an issue because the stock is already close to the max loss ($0), when I checked at IB the req was $60 per contract ($200 premium), that will rise as the stock goes lower but I'm not saying one should bet big anyway, furthermore if I tie say $500 per contract to make $150 per contract, that is a very good return. ET seems have a phobia against shorting options naked, truth is that it is irrational not to have a price at which you would be short an option (if not at 300% IV, what about 500%, or 1000%?). Fat tails is not a good excuse not to do it because you can short the option and buy a way OTM option in the same direction and cap your max loss (that's how traders like atticus do it). In this case it is really not necessary given that the stock is close to the $0 bound and the max loss is really not that big (compared to the gain) The $8 put was being bid at $2 at some points yesterday. 1/3 of the max loss ($6), if you wouldn't short at $2, what about $3 or $4?
Ok I don't want to come off as using hindsight bias here, but this clearly wasn't a fraud, or bankrupt stock, there was no insanity, and it was arguably not all that overhyped either (at least, no more hype than any high growth company with blue skies potential). It's a potentially revolutionary product that could bank enormous long-run profits, just like Ebay or Amazon or whatever. Also, 'might' is never a reason to put on a trade. 'Probably will' is minimum. If there's one thing I've learned in shorting, it's never try a long-term short in a hot stock with a hot product where the news flow and momentum are positive. No matter how crazy the valuation, it is just too easy for either i) you to be wrong, and the business really IS growing that fast ii) you to be right, but the gogo crowd send it up another 100%+ on pure BS anyway iii) you to be right, but your put expires worthless because the move doesn't happen in time, or happens from a much higher price. Those kinds of stocks are only worth buying puts on when the momentum has *clearly ended*; and really, it is best to wait for momentum to go into a clear downtrend - this has to happen for all big declines anyway. Also, hype alone is just not enough odds in your favour. The best shorts are things where EVERYTHING is in your favour - the business is deteriorating significantly, not improving; where the momentum is negative, not positive; where the flow of news is likely to have negative shock after negative shock, not the reverse; where the management is dishonest, clueless, or helpless, not where it's run by one of the best entrepreneurs in the world. At least try to get 75% of factors before taking the risk. In fact, although the valuation argument is obviously more favourable now, and the momentum has cooled off, I would not even look at shorting TSLA now up at 160. The next $50 is a coin flip. Stick to slam dunks, like some of the other good trades you posted on this thread. When you have a proven method, it's important to stick to it rigorously, and not pollute the results or trading process with marginal trades decided on a whim, or for emotional reasons such as thinking the price is 'too high'.
If the stock is halted with the put OTM, it is absolutely possible for you to get exercised. In fact, it is likely, because a halt implies that the stock is probably worthless. If I were long $5 puts on a $7 stock that was under a fraud claud, and it got halted, I would strongly consider exercising some or all of my put position at expiry. The total loss is the same as if you go long the stock, I wasn't talking about margin. I mean if you sell the $5 puts (for example) you risk losing $500 per contract if the halt re-opens at $0 and you got exercised by expiry. I don't mean this is necessarily a bad trade, in fact it could be interesting - just that you must factor in the risk of halt + assignment to your risk calculations. It's basically taking downside risk in a stock that could well be worth zero, and hoping it won't blow up over the next 3 weeks. Maybe it works, maybe it doesn't.
If they halt that is good for people short vol (as a long you are OTM), I wouldn't short calls because squeeze risk is too large but shorting the puts it is potentially attractive. Hoping for another panic today at open
Excellent post! Put sellers hate to be in the situations you describe which means it is a dream world for put buyers. Do you have a list of stocks you are following currently on the short side?
It looks like you are correct here, so this adds another risk. But IMO, its extremely unlikely the company would suffer SEC action by Nov 18, even Sino Forest it took quite a while for anyone to do anything about it. The main question is what is where is the price where the stock stabilizes at (where the funds stop dumping and the shorts cover), at that point 300% IV for like 3 weeks worth of risk seems very juicy
I agree with Cutten about the risk. At Friday's close I was: x,xxx long NQ shares xx short NQ $5.00 calls xx long NQ $5.00 puts So I was well hedged. BUT If the stock was halted, then I would have to make the decision about whether or not to exercise the puts. Instead of taking that risk, I closed the above three positions. It cost me 1% or 2% plus commissions, but it removed the "halt risk" completely.
I sold those $30 puts at a small loss and bought $95 Mar puts a few weeks later. I agree with waiting to the momentum to die out, I should have waited for a lower high on the daily chart or fundamental catalyst before buying