Mark: well,,,, it's not *really* that simple.
"1. Someone selling calls is obviously expecting the stock to go down."
Not really. Suppose I held 1M shares of IOMG (I wish!), and I had a target price of, say, $23.50. Now also suppose I could sell the Nov 22.5 call for $1 (just a what-if, not a real number). I could sell the 1000 calls and make $1M right now. If the stock *does* go down, I keep the $1M. If the stock goes up, I make money. If IOMG goes up past $22.50, my shares get called at the price point I desired.
I only lose if IOMG goes up *past* 22.5 BY NOV 22. Thus, I would be betting that the potential for IOMG to pass the strike price by that date was worth less than $1 in hand. This is not the same as betting that the price is going down. Conversely, the BUYER of those calls is betting the other way: that IOMG will EXCEED 22.5 by November 22.
"2. Someone with 2,000 contracts (that's 200,000 or $3.75M) to sell is not a dummy (or are they?). "
Quite possibly, yes. Some experts lost, literally, hundreds of millions shorting IOMG. But this is more like "you never lose money taking a profit."
Also note: there are more reasons for writing options than the one I mentioned above. This is just one possible explanation.
I am not an expert on options. Anyone else, feel free to chime in here to add/correct. |
