how does that work anyway?...if someone wants
to sell 25M dollars worth of puts in one fell swoop, are
they guaranteed that someone else will take the other
side of that trade?
Let's see... if I am understanding this... then...
So long the necessary equity required is in the account to cover the trade, (say in cash), and their trade meets whatever market maker(s) price is at the time... then the original transaction could have been a "sell put to open" and as Nancy indicated, they collected the premium. Most probably the option market makers are the ones taking the other side of the trade, (and don't cry for them as the spreads in options are in most cases larger than the equities) --no doubt the m/m hedged whatever position they had, that is supposed to be part of their job, for their own good.
Then as the market went up, the value of the put premiums decreased.... following this scenario, the closing transaction was a "buy to close" at a reduced premium, making the difference a nice profit for the speculator(s)
Or....
They could have had an open short position on the underlying (and possibly still do), then they sold the puts as a protection to the short position (similar to a selling a covered call if one has a long position on the underlying). Therefore... as the market rose and their short position gets heat, the profit on the short puts relieves some of that heat.
If so.... whoever did this, is thinking: "we had a rally and now it is at its end.... closing the short put and having retained their short position with relative less risk. (and a nice profit)
(of course that if the market continues to rally then their short position (if at all they had it or retained it), will continue to create a headache.... but in this market's volatility... I think we will still continue to have more downside...
Just my opinion and interpretation of the described trade and the angle that Nancy gave to it. (volatility seems to be the key to this, I suppose)
But I could be worng.
btw... was this a single trade or a group of trades ?
-hi Susie. |
