Yesterday, I felt as several seem too, that EFCX was a good short. SO.. Instead of shorting, I bought an october 12.50 put when the stock was at 13 5/8, paying 1 7/8) at the time. Since then, the stock is down 1 3/16 (close to 10%) to 12 7/16 (in one day), yet the put has DROPPED to 1 5/16 with a 1 9/16 ask. Can anyone help me understand why?
Sometimes, when there is extreme bullishness or extreme bearishness (or simply extreme volatility) present, calls or puts will get very expensive. This is pretty intuitive. However, at the same time calls are high priced because of the extreme bullishness, puts will also tend to be very high priced. This is less intuitive. The reason it occurs is a process of conversion by which one can buy puts and go long the stock, thereby creating a "synthetic call". This can create a temporary abnormal pricing. When things return to a more normal and less hyper state, prices on both the calls and the puts will tend to decline. |
