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Huntsman Corporation Message Board

  • steri318 steri318 Jan 26, 2013 2:34 PM Flag

    Recent Hun Put Activity

    Have been reading all the angles with interest - including the crude ones - but have yet to hear any case against why they could not simply be insurance to the downside by a large holder?

    In the option market it is really hard to divine the intentions on either side without someone saying explicitly, but amidst all of the speculation, it seems the debate is purely binary - bull or bear. Why not simple insurance to the down side while holding the shares in case of an upside "surprise" either from the earnings coming or the entrance of a suitor?

    It's an honest question - anyone see why not?

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    • The answer is really quite simple. Any bullish big holder who wanted "protection" would sell puts with a higher strike price to realize more proceeds from the trade. A 20 cent put sale makes little sense from the perspective of a HUN long.

      Bottom line, optionMONSTER had it right (I'm sure they figured it out from the detailed trading data. Trades at the "ask" price would indicate a "buy" vs. a "sale" of the puts). The big put trade was purely a speculative purchase by a HUN bear. The seller of the puts could be bullish, neutral or even bearish on HUN. But it really doesn't matter if the seller believed the stock would never collapse to $12, as he would simply pocket the put proceeds.

      Make sense?? Myself, I don't think HUN is going to $12 and the puts will expire worthless. That said, efforts by the HUN pumpers to spin it as a "bullish" trade are total misinformed nonsense.

      • 2 Replies to oilman95762
      • (Sigh). sl1ck seems to have been misguidedly (didn't say "foolishly," could have) holding court on the recent optionMONSTER mischaracterization of the ginormous (~2MM share) Put trade for May 2013 $12 options.

        People, first and foremost, despite the best attempts at obfuscation (and worst attempts at bringing clarity) of all interested readers and posters here, this is NOT rocket science. It's a classic bull trade, and in this case there is really no logical (but plenty of illogical) "explanations" to the contrary.

        sl1ck and others seem to be stuck on what they think the meaning of a "put" is -- which is (albeit superficially) typically construed to signify that somebody thinks the stock price is going down. Why that is I don’t especially know except to observe that unsophisticated people who don’t (or can’t?) apply common sense or who don’t (or can’t) look at both sides of the trade and what it means to each party are apt to fall into this trap. The basic rap is that if you are BUYING a put option you are bearish and if you are BUYING a call option you are a bull.

        Well what if you are selling? DUH!

        In this case as I’ve attempted to ease through the crevices of sl1ck’s thick skull (I’m done with that now, btw) the trade originated with a SELL**. The asterisks will be explained later. How can this be determined? Well, you could take the not always accurate approach and attempt to look at when asks and bids originated and maybe even try to piece together if bids were hit or whatever… but that’s just a great way to obfuscate reality.

        So let’s break this down even further by looking at the macro picture (hoping light bulbs will begin to go off here). FACT#1: 2MM (that’s “million” for people who don’t understand what MxM means…) options were traded. FACT#2: The time period is 5 months (May of 2013. In other words, this is not an especially long option. It’s actually on the short side, time-premium wise, considering that you could transact Jan. 2015 options for HUN. FACT#3: The strike price is $12. In other words, it’s so far (33%) below the then the current SP for HUN as to be almost ridiculous. FACT#3 corollary: The ONLY way the SP of HUN would drop below $12 in 5 months is if a black swan event occurred. Literally something that would take down the whole market… not just HUN. PS - If you have an argument with this last, corollary, point, you don’t know the company that well.

        So these are the facts. Now ask yourself how this trade likely got put on.

        Here’s what sl1ck thinks: Some virtual #$%$ decides to play a game of 5 card poker and toss away $400,000.00 betting on the flop that he’s got a Royal Flush. The odds are like 1:650,000 or something. That’s actually probably better odds than that he’s some Nostradamus and chose Huntsman to exercise his “black swan” theory rather than some much more appropriate stock – Bank stock, anybody? Yeah. Anyway, sl1ck is attempting to argue that this virtual #$%$ would throw out these crazy bids and assume that some other dudes holding HUN would just start hitting these bids as they popped onto their online broker screen…. Right. (laughing now). It’s a shooting gallery now at the HUN corral, folks! Step right up! Take this virtual BEAR #$%$s money!!! Yes, this guy would be the bear of bears, folks. SUPER BEAR #$%$ fo shizzle!!

        Here’s what I think: Somebody who already holds LOTS of HUN (who is BULL and wants to keep his premium, too!) wrote a couple of big (maybe only one, I didn’t bother to research it) PUT options hoping to generate a little insurance on his whopping position (the calm, logical approach) or, probably more likely, in order to generate a little buzzzzzzz. Or actually both. But because the options he’s willing to write are a) so far out of the money; and b) of such short duration, he actually arranges for the transaction. Because only a freakin’ SUPER BEAR #$%$ would buy them!!! So this guy buys his own puts, essentially. Or at the very least puts them into the hands of an associate. Cost? Whatever the fees might come to. Because he’s likely an institution, it’s cheap window dressing.

        Of course, it “could be” (choking and sputtering now) that a SUPER BEAR #$%$ would actually take the ask once the holder of the 2MM shares wrote the option, but that’s doubtful (because apparently sl1ck doesn’t have that much money!! Which is why he’s here arguing about it….). Logic and reality dictate that with ANY very large put option transaction it has to be viewed from the standpoint of WHO OWNS THE SHARES/WHO WROTE THE OPTION which in this case would be the SELLER, not the BUYER.

        Moral to the story: Writing a put is a CLASSIC Bullish Trade, basically akin to buying a long call option.

        Now if all of this still is incomprehensible, I’m sorry but you can blame sl1ck for confusing the whole situation… or actually, you can blame that infallible bastion of truth optionMONSTER who apparently first waved the wand of confusion betwixt sl1ck’s eyeballs!

        Sentiment: Hold

      • Actually it does not make sense to me. You seem to be assuming that the puts purchased at that level will never gain in value. I don't think so. The lower the equity price heads toward $12 the more valuable those puts purchased for $0.20 become.

        The further out of the money, the cheaper the derivative.


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