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Post by papihoyos on Aug 8, 2014 14:52:23 GMT -5
I have given this great thought on how this may be possible. I give you the scenario that will require you to initially ignore margin requirements. I ignore margin requirement because the Hedge Funds seem to work under different rules than the retail investor. My scenario is a follows and in order to work requires significant price movement in a short period of time:
Say you sell short 1 share and collect $8.10. You then take the 8.10 and purchase JAN 15 $8 Calls for $1.92. You can purchase 4.22 Calls.
See attached for gain (loss) at various price points. This example ignores theta erosion and vega resulting in changes implied volatility after a binary event. But I think it clearly shows that some of the shorts are really LONG!!
Attachment Deleted
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Post by suebeeee1 on Aug 8, 2014 15:02:48 GMT -5
I am one of those shorts that are really long. After having expended most of my available discretionary cash, I have purchased calls for January 2016 and at the same time sold puts for the same day at a different price target. The sold puts are clearly to finance more stock positions. I am hoping this blows out the call price. GLTA
Sue
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Post by chauffe00 on Aug 8, 2014 17:35:30 GMT -5
I have given this great thought on how this may be possible. I give you the scenario that will require you to initially ignore margin requirements. I ignore margin requirement because the Hedge Funds seem to work under different rules than the retail investor. My scenario is a follows and in order to work requires significant price movement in a short period of time:
Say you sell short 1 share and collect $8.10. You then take the 8.10 and purchase JAN 15 $8 Calls for $1.92. You can purchase 4.22 Calls.
See attached for gain (loss) at various price points. This example ignores theta erosion and vega resulting in changes implied volatility after a binary event. But I think it clearly shows that some of the shorts are really LONG!!
hence the term Hedge... this stock is controlled...and heavily manipulated. Great post! Thanks!  |
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Post by joeypotsandpans on Aug 8, 2014 18:35:38 GMT -5
I've stated this numerous times in the past...it is still a net zero sum game when all is said and done...so yes you may have sold puts but who bought them? Who sold the calls that you bought...if they weren't from a covered long who sold them then how do they cover it and so on and so on...the only true hedge for the short equation that is accountable are with warrants and any debt that is convertible to shares, and from what I remember from what Matt said at the shareholders meeting when we asked post meeting Deerfield was not short(correct me if you didn't hear it the same way GWB). So as much as has been made from certain posters that "those who think a short squeeze is possible are dreaming" I have news for you: I lived the dream during the initial DNDN squeeze and that was manipulated very much in a similar manner prior to that squeeze. I distinctly remember watching the screen in awe as the stock and options were ticking up in gaps, something I will never forget just like the day of the markets flash crash...only problem with the flash crash was I couldn't get my trades through to get executed (I had puts on the indices at the time)it was a surreal experience to say the least. In any case, with the amount of open interest in the options that expire next friday, I am expecting volatility to increase significantly so fasten your seat belts as I think we'll be taking a trip to six flags next week...come to think of it, isn't six flags right there by Valencia...
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Post by dreamboatcruise on Aug 8, 2014 18:52:07 GMT -5
Magic Mountain
I guess that whole area up around Valencia isn't for the faint of heart.
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Post by babaoriley on Aug 8, 2014 18:57:20 GMT -5
Are the shorts really longs? Go ask Alice when she's ten feet tall!
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Post by liane on Aug 8, 2014 19:19:39 GMT -5
I have given this great thought on how this may be possible. I give you the scenario that will require you to initially ignore margin requirements. I ignore margin requirement because the Hedge Funds seem to work under different rules than the retail investor. My scenario is a follows and in order to work requires significant price movement in a short period of time:
Say you sell short 1 share and collect $8.10. You then take the 8.10 and purchase JAN 15 $8 Calls for $1.92. You can purchase 4.22 Calls.
See attached for gain (loss) at various price points. This example ignores theta erosion and vega resulting in changes implied volatility after a binary event. But I think it clearly shows that some of the shorts are really LONG!!
I guess I don't follow why you would want to do this unless there was a large movement to the upside. I'm using very round numbers (doing this in my head). Below s/p = $8, the calls are worthless, and the short still must be covered. The downside is not hedged at all, and on the long side, I think I would rather buy calls outright - which would be profitable at ~ s/p = $10. |
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Post by papihoyos on Aug 10, 2014 7:37:43 GMT -5
I have given this great thought on how this may be possible. I give you the scenario that will require you to initially ignore margin requirements. I ignore margin requirement because the Hedge Funds seem to work under different rules than the retail investor. My scenario is a follows and in order to work requires significant price movement in a short period of time:
Say you sell short 1 share and collect $8.10. You then take the 8.10 and purchase JAN 15 $8 Calls for $1.92. You can purchase 4.22 Calls.
See attached for gain (loss) at various price points. This example ignores theta erosion and vega resulting in changes implied volatility after a binary event. But I think it clearly shows that some of the shorts are really LONG!!
I guess I don't follow why you would want to do this unless there was a large movement to the upside. I'm using very round numbers (doing this in my head). Below s/p = $8, the calls are worthless, and the short still must be covered. The downside is not hedged at all, and on the long side, I think I would rather buy calls outright - which would be profitable at ~ s/p = $10. Leverage, a 4: 1 leverage.
All I'm trying to say is that the "shorts" may not be shorts after all but rather longs. I'm NOT suggesting this strategy by any means. And this strategy only works if there is a big movement to the upside in a short period of time. As Joe stated this is a zero sum game. When the music stop, will you have seat? Also if you think about it, this strategy propels the stock higher because as you unwind your short position, it provides even greater pressure to the upside which is leveraged 4:1.
For the record, my strategy has been to sell Puts to finance my Long Calls (LEAPS) and then roll my puts to finance again the roll of my calls. Recently, I rolled my $7 Jan 15 to Jan 16 (roughly 50% of them) to finance rolling 100% of my Long Calls which are in $2 to $5.5 range. I feel comfortable that the stock will be greater than $7 by Jan 15 and so my remaining Puts will expire worthless. So essentially I brought myself another year with some else's money. As we all expect, I believe we will have a big movement in the stock with the announcement of a partnership, at which point, I plan on selling deep in the money calls against my Long Call positions to lock in the profits because I do expect the stock to drop back down until we see revenues.
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