Options payout during bankruptcy

[TheDawn]

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?

Have you considered how much would you lose if it didn't go below the strike? Take the highest strike on the put of $10 for example, what if the underlying's price by Oct. 18 is $11? You would've lost on your underlying's long position(s) and $10K on the options. Double-whammy. Going OTM saves you on the cost but since the options is so OTM that its chance of becoming ITM is so low that it's almost a guaranteed loss unless it actually has a very high chance of becoming ITM but then if that's the case, its price wouldn't be cheap cuz everybody will be bidding on them. The reason why the price is so cheap is because everybody knows the probability of them becoming ITM is so low unless you have some insider information that GME is going to go bankrupt by October of this year otherwise it's $10K in the water for you guaranteed or I should say almost guaranteed.

That's why I said that's not how you hedge.

 

[taowave]

Dawn,OP is a Troll...Dont feed him

https://www.elitetrader.com/et/threads/i-told-you-bs-was-bs.378976/

 

[wxytrader]

Have you considered how much would you lose if it didn't go below the strike? Take the highest strike on the put of $10 for example, what if the underlying's price by Oct. 18 is $11? You would've lost on your underlying's long position(s) and $10K on the options. Double-whammy. Going OTM saves you on the cost but since the options is so OTM that its chance of becoming ITM is so low that it's almost a guaranteed loss unless it actually has a very high chance of becoming ITM but then if that's the case, its price wouldn't be cheap cuz everybody will be bidding on them. The reason why the price is so cheap is because everybody knows the probability of them becoming ITM is so low unless you have some insider information that GME is going to go bankrupt by October of this year otherwise it's $10K in the water for you guaranteed or I should say almost guaranteed.

That's why I said that's not how you hedge.

My long position cost is 10k. Buying 15 OCT18 $7 strike put contracts @ .30 is only $450, so that is what I would be losing every 6 months if they expire worthless...as they are expected to thus the cheap price.
If BK then each contract as mentioned would be worth around $700 * 15 = $10,500.

The reason why the price is so cheap is because everybody knows the probability of them becoming ITM is so low unless you have some insider information that GME is going to go bankrupt by October

This is interesting because clearly GME is a going concern at this point due to how cheap these puts are. Put prices are basically a barometer of a companies health more so than any financial report. I would assume prices would jump up prior to any bad news being released.

Growing concern
A business operating as a going concern is expected to trade for 12 months or more without any threat of liquidation. Going concern means it does not appear that the company is at risk of closing due to insolvency but instead is expected to survive and thrive.

 

[long]

Has GameStop ever pivoted their business plan? When the short squeeze hit it was definitely a miracle lifeline for them but their business and product was obsolete. Have they shifted for the future or is it just a meme stock that’s being traded by idiots?

 

[wxytrader]

Has GameStop ever pivoted their business plan? When the short squeeze hit it was definitely a miracle lifeline for them but their business and product was obsolete. Have they shifted for the future or is it just a meme stock that’s being traded by idiots?

No idea...just in it for the premium. They do have a Z score of 4.18 according to my sheets. It's clearly a meme stock and would never have gotten to these levels based on their business. I would put them in the same category as Blockbusters, and those all disappeared as we know because they failed to transition to online and streaming.

https://www.gamestop.com/faq/#Shipping
They currently only ship inside the US...but apparently own EB games outside the US. We have EB games up here and they look as busy as you would expect a brick and mortar gaming store to look.

 

[TheDawn]

My long position cost is 10k. Buying 15 OCT18 $7 strike put contracts @ .30 is only $450, so that is what I would be losing every 6 months if they expire worthless...as they are expected to thus the cheap price.
If BK then each contract as mentioned would be worth around $700 * 15 = $10,500.

If they are not bankrupt, you will be out of $10,500. Like I said, unless you know insider information that the rest of us don't that they are going under for sure by October of this year, your loss is 99.99999999999999999% guaranteed.

This is interesting because clearly GME is a going concern at this point due to how cheap these puts are. Put prices are basically a barometer of a companies health more so than any financial report. I would assume prices would jump up prior to any bad news being released.

GME is a going concern because its puts are cheap??!! LOL You don't even know how puts work and how they are priced. OMG!! You are confusing them with calls. Anyway more homework for you regarding puts : https://www.investopedia.com/terms/p/putoption.asp

@taowave, after this I am done. I promise. I am putting him on Ignore.

 

[wxytrader]

If they are not bankrupt, you will be out of $10,500. Like I said, unless you know insider information that the rest of us don't that they are going under for sure by October of this year, your loss is 99.99999999999999999% guaranteed.



GME is a going concern because its puts are cheap??!! LOL You don't even know how puts work and how they are priced. OMG!! You are confusing them with calls. Anyway more homework for you regarding puts : https://www.investopedia.com/terms/p/putoption.asp

@taowave, after this I am done. I promise. I am putting him on Ignore.

I don't think you understand what is being discussed. I have a long stock position that has a book value of 10k. If GME goes bk then I lose the whole 10k. So I was looking into hedging by buying OCT18 $7 strike puts for .30.

The cost of buying 15 contracts is $450. Should GME not go bk by then, I lose $450. If they do go bk, then my stock position is worthless, and the put options will be worth about $7 (intrinsic value) each or about $10,500 total.
(or I could exercise 5 contracts to cover the 500 shares that I own @ $7, for $3500, and then sell the remaining 10 put contracts for $7000=$10500)

A going concern means the company is in good financial health, so having cheap bk puts would indicate that the market agrees that GME is healthy financially...at least enough to stave off bk by October.

Going concern is an accounting term for a company that is financially stable enough to meet its obligations and continue its business for the foreseeable future.

 

[taowave]

LOL...He goes from Black Scholes is BS,to Stops or for losers,and now he,s trying to protect his position..He obviously got legged higher,can not take a loss and is looking for garbage protection..

Hes on IGNORE,but it appears from BMK's post hes looking at the 7 strike...down close to 70% from last..

There are far better hedges than what hes dreaming of

Has he posted his actual position?

If they are not bankrupt, you will be out of $10,500. Like I said, unless you know insider information that the rest of us don't that they are going under for sure by October of this year, your loss is 99.99999999999999999% guaranteed.



GME is a going concern because its puts are cheap??!! LOL You don't even know how puts work and how they are priced. OMG!! You are confusing them with calls. Anyway more homework for you regarding puts : https://www.investopedia.com/terms/p/putoption.asp

@taowave, after this I am done. I promise. I am putting him on Ignore.

 

[TheDawn]

I don't think you understand what is being discussed. I have a long stock position that has a book value of 10k. If GME goes bk then I lose the whole 10k. So I was looking into hedging by buying OCT18 $7 strike puts for .30.

The cost of buying 15 contracts is $450. Should GME not go bk by then, I lose $450. If they do go bk, then my stock position is worthless, and the put options will be worth about $7 (intrinsic value) each or about $10,500 total.
(or I could exercise 5 contracts to cover the 500 shares that I own @ $7, for $3500, and then sell the remaining 10 put contracts for $7000=$10500)

A going concern means the company is in good financial health, so having cheap bk puts would indicate that the market agrees that GME is healthy financially...at least enough to stave off bk by October.

Going concern is an accounting term for a company that is financially stable enough to meet its obligations and continue its business for the foreseeable future.

You contradict yourself. If you think the company is in good health, then WHY are you buying puts thinking they will go bankrupt and you will lose all your $10K position? LOL Anyway it's meaningless to say whether you will be completely hedged or not without knowing the purchase price of your long position. You don't hedge the long position on the shares on the whole, you do it leg by leg. You don't say oh my whole position is $X amount, so all I have to do to hedge against it is to buy the same $X amount in options. That's not how it works. So unless you bought your shares at $7 (still don't understand why you need to keep your purchase price of the undie as a secret unless you never bought the security and this is just a theorizing exercise), exactly the strike of the put, your puts won't protect your longs unless the undie really falls to below $7, that's what I am trying to tell you.

You need to read the Investopedia articles that I gave you to learn about puts specifically. And actually you need to read all of the Investopedia articles on options starting from the basic, to learn about what they are, how they are priced, how they work before you trade in them.

 

[TheDawn]

LOL...He goes from Black Scholes is BS,to Stops or for losers,and now he,s trying to protect his position..He obviously got legged higher,can not take a loss and is looking for garbage protection..

Hes on IGNORE,but it appears from BMK's post hes looking at the 7 strike...down close to 70% from last..

There are far better hedges than what hes dreaming of

Has he posted his actual position?

No, no posting of his actual positions, stocks or options. I don't think he's in any GME positions tbh. He's just theorizing atm I think. He has no idea how puts work and how they are priced. He thinks GME is going bankrupt by October of this year and that's why the puts are so cheap. and all he needs are puts so OTM to protect his long positions in the undie which he refuses to share any details except it's $10K in total book value.

Anyway he will learn.