Lol it's just a question but it seems about right...$450 ($3/day) for 6 months protection. I checked a few other stocks and pretty much the same.
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Options payout during bankruptcy
- Thread starter wxytrader
- Start date
Lol it's just a question but it seems about right...$450 ($3/day) for 6 months protection. I checked a few other stocks and pretty much the same.
Ok so first of all, the underlying is not Burger King or BK, it's GME. LOL So we are looking at a totally different security with completely different IV that's a possible going concern. Ok with different IV, then the options would be priced differently.
In order to determine whether you are completely hedged, we still need to see your long position. Did you actually buy this stock? If yes, what price did you buy it at and for how much? Is it 1500 shares since you were looking to buy 15 put? Screenshot would be nice if you don't mind.
Today he was trying to explain why America dropped the atomic bombs on Japan. I think he mentioned BK somewhere.
Lol..IVE got him on heavy snooze,but saw the title and knew the gibberish was flowing
I already mentioned in my first post the position is 10k..so I need a 10k hedge...or a way to guarantee my position is worth 10k in a worst case scenario.
15 OCT18 7 strike contacts x .30 = $450
1500 x $7 = $10500
10 OCT18 10 strike contracts x .85 = $850
1000 x $10 = $10,000
30 OCT18 3 strike contracts x .03 = $90
3000 x $3 = $9000
So I guess when the only concern is protection from a bk then it's better to go farther OTM since prices are relatively cheaper as more likely to expire OTM.
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OMG! The hedge with options does not work that way!! Just because you bought higher than $10K worth of options does not mean your long positions of $10K will be hedged.
You need to read this article to understand how put options are used to hedge against long exposures. https://www.investopedia.com/articles/optioninvestor/07/affordable-hedging.asp And you will understand why you need to examine your stock purchase price and quantities in order to determine whether it's a complete hedge.
If you want us to see whether you missed something, post your long positions in GME here, otherwise I am done here.
Good luck!
If my position (book value) is 10k and it goes bk then I have lost 10k.
How much would 1500 7 strike options be worth if price goes to 0?
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I know nothing about this. But I would think that the options would pay out unless there are “bk” rules that apply to options that nulls the contract if “bk” happens. I would never buy an option if there was a rule like that and speculate that nobody else would either. 99% chance the option you bought wasn’t written by the underlying anyways. My experience is with futures options contracts and they are guaranteed by the exchange. In an options writer can’t pay up the exchange will IMMEDIATELY seize all their assets including their dog. And maybe their children. There is no going to court and negotiating.
That said, if you’re only trying to hedge against a bankruptcy and not a price correction I would buy cheap OTM options to cover 2 to 3x the current value of your position. It’s a lottery ticket.
If you are actually holding the stock, and it is still trading on an exchange, then the price will not be zero. It might be something like six cents per share, and there might be no active bid, but the price will not be zero.
And you will be able to exercise your put options and sell the stock you are holding for the strike price.
If you are not holding the stock, then you should be able to sell the put options just before expiration, and they will be trading at parity, e.g., if the stock price is six cents per share and the strike price of the put is $7.00, then the put will be worth $6.94. Assuming a standard multiplier of 100 shares, that means each put option would be worth $694.00 in this example.
If the stock has been completely de-listed and it can no longer be bought or sold on an exchange...
... then there are procedures and regulations in place that call for cash settlement of the options, because the underlying security is no longer traded and cannot be delivered. And when that happens, in most cases, the price of the underlying is indeed treated as zero. So each put option would be worth $700 in your example.