Selling Nov 55 Puts as a sign of confidence? I don't get it. If they were confident, they would have sold higher priced puts, like 85's or 95's or 105's.
If the Puts were sold against DELL stock (as an opening position), this is very confident. Here's why:
~35,000 Puts were sold, representing ~3.5M Dell shares.
The proceeds = 3,500,000 x 1.75 = $6,125,000 (minus commission)
The underlying at time of sale = 3,500,000 x 93 = $325,500,000
Simplistically, the DELL shares must be held until a) options are sold, or b) options expire. [It is possible to cover with cash or offsetting options, but that's too practical for this discussion.] So, the Put writer has received ~$6MM and must withstand ~$3.5MM in lost opportunity for every one point drop in DELL.
Let's assume the Puts expire worthless. Why would anyone accept such a paltry sum against $325MM? Under this scenario, we must assume that the cost basis is well below $55/share and that the Put writer is willing to sacrifice unrecognized gains which have accrued.
Will the CPAs out there please explain the benefits (taxation, etc) of such a scenario? |
