The hunt for crisis alpha

gmal said:
If there are no bid for SPY puts, can't you sell where ever it is available like MSFT, AMZN or AAPL puts. Since the markets will be closed for the day, those puts should also expire worthless right?
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Single stocks can be down more than 20% in a day.
 
TheBigShort said:
However, maybe I was not clear. You sell the same day expiration option. After a 20% drop the stock stops trading for the day.
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Hmm, actually, your mileage will vary. I vaguely recall that in case of a trading halt for an index option the SQ for settlement will be from after the resumption of trading. It's possible that in case of a trading halt, the owner of the stock/ETF option has a right to exercise the option at the usual time. In both cases you, the short, will be very screwed.
 
Same Lazy Element said:
Hmm, actually, your mileage will vary. I vaguely recall that in case of a trading halt for an index option the SQ for settlement will be from after the resumption of trading. It's possible that in case of a trading halt, the owner of the stock/ETF option has a right to exercise the option at the usual time. In both cases you, the short, will be very screwed.
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Thnaks for pointing this out. I will try and find the links and post here
 
TheBigShort said:
That's not very smart. You would lose all your extrinsic value if you exercised your option.

However, maybe I was not clear. You sell the same day expiration option. After a 20% drop the stock stops trading for the day.
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How about in this scenario:

Index has a 20% circuit breaker
Index is made up of sum of constituents A and B

At time T-0
A = 100, B = 200, Index = 300

You sell the same day expiration 235 P for $5 ( Just outside the 20% circuit breaker)

At time T-1
A = 70, B = 140, Index = 240 (Index has hit circuit breaker)

Fair value of index based on constituents is 210.
I think in this scenario buyer of the option would exercise and lock in the gain by buying stock in A and B.
 
kv1289 said:
How about in this scenario:

Index has a 20% circuit breaker
Index is made up of sum of constituents A and B

At time T-0
A = 100, B = 200, Index = 300

You sell the same day expiration 235 P for $5 ( Just outside the 20% circuit breaker)

At time T-1
A = 70, B = 140, Index = 240 (Index has hit circuit breaker)

Fair value of index based on constituents is 210.
I think in this scenario buyer of the option would exercise and lock in the gain by buying stock in A and B.
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Doesn't the entire market stop trading when the circuit breaker is hit? How could they lock in the gain?
 
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