Why SHLD December PUTs so expensive?

Discussion in 'Options' started by R0bert, Aug 20, 2008.

  1. R0bert


    SHLD IV for december 90 puts significantly higher than for calls. I'm novice in options. Is it normal?

    In theory IV(put)=IV(call) and I can't find any info about SHLD dividends or smth that could pump the puts up. Are they going to do some trick that considered in put's prices?
  2. 50_Bip


    Fast Eddie is probably doing conversions to pump up earnings :cool:
  3. R0bert


    Who is Fast Eddie? Which one of them do you mean? How can conversions pump up earnings?
  4. R0bert,

    I think SHLD shares have very high short interest and are probably not available for shorting.

    That probably limits arbitraging the put call disparity that you found.

  5. R0bert


    Thanks! My broker has more than 50000 SHLD available for borrowing. Nice chance to get almost riskfree $$ on selling conversions.
  6. MTE


    Don't you think it's too obvious for such a mispricing to remain!? I bet your broker is not the only who has shares avaible.
  7. R0bert


    Guess you are right, but i tried to short SHLD on other accounts and neither Penson, nor Merrill allow to short it:confused:
  8. MTE


    I don't know, maybe it is an opportunity if you can find the shares...
  9. If you are able to borrow the stock and sell the conversion, I would worry about your subsequently being forced to cover your short stock position.

    I have never been forced to cover a short stock position, but I am under the impression that it can happen.

    Maybe somebody else can comment on the likelihood of being forced to cover.

  10. R0bert


    Once (a couple months ago) i got 500 stocks or so of ARTC suddenly covered by broker (w/o any notice), that made my sold PUTs naked, but luckily the stock raised after it and I bought ITM PUT closing even greater profit than it would be possible in case of holding reverse conversion till expire date.
    I bear in mind such risks when entering position, and that's why i noted almost riskfree $$:)
    #10     Aug 21, 2008