Drew - you have me confused, as does LoF... I don't see how you can say he is correct let alone 100% correct!!!
LoF posted -
Put premium has gone into the toilet with expiration so close. The day after the preannouncement would've been a great day to lever-up a position in DELL through selling puts.
I am completely confused by this series of posts. I was a BUYER of puts the day before pre-announcement - they have more than doubled since then - hardly "in the toilet"...
Likewise - if you thought a stock would tank, why not BUY the puts, then sell after the tank and use the premium to help buy the stock, now at a lower price anyway? I can't see how the strategy LoF proposed works.
Here's an example - a few days before the preannounce, several on the thread were convinced it would happen and bought Feb puts at various strikes - 42.5s, 40s, 37.5s... let's say that someone who had no position and wanted to acquire DELL (say 1000 shares) also bought the Feb 40 puts. They pay maybe 1 and change for 100 of the 40s for a total of about $10K.
Even if they bought the 1000 shares right now, they would have made $40,000 on those puts, which would nearly pay for the stock they want to buy!! They would essentially get 1000 DELL for $5,000, 5 bucks a share.
Now we look at SELLING puts and expecting 1000 shares of the stock to be put to the seller as LoF suggests. The seller in this case gets a $1K premium for 10 contracts but gets the stock put to him at 40 - so he pays $39 for a stock he could buy on the open market for $35...
Why is this a smart play? What am I missing here? |
