Do you know of any way to get an honest insight into what is driving the price setting level?
No. I have never been on their side of the fence. I just look at what is and try to see how it might be to somebody's advantage to take the other side. I don't have a good answer for you, except to note that the volatility has recently been a lot higher than current levels, and the put premium is reflecting anticipation of a return to those higher numbers.
ivolatility.com
Somebody may be willing to bet CPN will be toast two years from now, or the specialists are simply willing to take their markup on the spread and do whatever it is they do to lay off their risk. At today's prices, if you could buy puts at the bid and sell calls at the offer, you could have a synthetic short with a .35 credit in your pocket. That's not bad if you think the stock is headed lower, even if only in the near term, and you think you can buy the stock cheap. It's a better deal than simply shorting the stock. If you think the stock is going nowhere to not much higher, or will only pull back to around 2.50, a calendar spread looks pretty nice, especially if you can get 1.00 or more for the short 2004JAN2.5 puts for a net debit of .40. If the stock goes nowhere before Jan 2004, that should be good for 150% gain, and a lot more if the volatility does go back up. There are so many ways to play these things it's impossible to know what somebody else is doing that makes the long side of those puts seem attractive.
If you are right that CPN will survive, and not fall much below 2.50 prior to expiration, then for you the naked short is a sweet deal. Even if they are only still in business two yeas from now, owning CPN at a buck per share net could be a good deal. |
