Looking specifically at BIDU with you want to short 100 shares: BIDU is currently at 108.14 and a 2% drop would require the price to go to 105.98 for a profit of $216 for an investment of $10,814 for your roughly 2% ROI The BIDU 110 Dec Puts are currently selling for $6.30. If you bought a put and the stock price moves the same 2% down to 105.98 the option would only yield a profit of roughly 124.44 depending on how long it takes to reach that point. That is a $124.44 profit on a $630 investment for a 19.8% ROI. Furthermore, you could have bought 10 puts for only a $6300 investment (leaving $4500 of your capital available for other trades) and made a profit of $1244.40 on the same 2% move.
That is a very close estimate, assuming no chanage in IV, you make $1167 by end of tomorrow, $322 after ten days. Not bad for 2% move and all those time decay that comes with long positions.
What about liquidity? Will liquidity be an issue if I want to trade options of stocks like TMV, CHKP,DOX�
All options are not equal. Some options like spy, msft, qqqq are super liquid. The one you mentioned are not. I would pay more attention to the bid/ask spread than the volumes and open interests when checking liquidity. After all, options contracts are created out of thin air. It is what people like to pay or sell that counts.
If you would like to short GTLS for tomorrow for the same profit of 2%, would you prefer shorting the stock or buying its PUTs? It looks like the spread in options is huge.
With this kinds of spread, forget about it. MMs are doing a very good job to scare their customers away.
RamaTrade is correct. Options especially when they have fairly large spreads are really better for larger, slightly longer term moves. For example, say you expected GTLS to drop to $25 by Dec 17th at least. If you short 100 shares - you get $2797 and if you are correct and it falls to $25/share, you can cover for $2500 for a profit of $297. Of course, you had about $2800 used up then in your account. In theory, you also risk fairly large losses if the stock goes over $30-$35, etc. You could also buy the DEC 30 strike put for $310 (the quote I see for the ask). If GTLS is at $25 by Dec 17th, that option will be worth at least $500 for a profit of $190. You could buy 3 of the option for $930 and get a profit of $570 for example. Your max risk is $310 per option if GTLS is >$30 at Dec 17th. There will be no value in the put and it will expire worthless - this is true if GTLS goes to $31, $41, or $99. If you want to use options trading for specific, fairly smallish moves, you need to look at very active options with tight spreads like RIMM for example. ADDED: MMs are Market Makers - they will take your trade and they hedge against it and make the commissions and/or the small spreads - at least that's my understanding of it. JJacksET4