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  • g_gordon_libby g_gordon_libby Feb 14, 2006 10:49 PM Flag

    deep in the money put options volume

    ...scenario.

    The initiator was a buyer. You put down $70 or $80, buy the options and get the exact same payout profile if you had shorted the stock outright. They are 100 delta options; there is no time premium to decay. The difference is leverage. Putting down $70 to short the stock via puts gives you a much higher return than on the margin required for outright shorting. Therefore, for the same amount of capital, a much larger short position can be created with options. The buyer may also have restrictions on outright short selling.

    Who sold these options? Easy. The market makers (Citadel, et. al.) They sold the options, and then sold stock against them 1:1. With GOOG at 350, they would be thrilled to sell the 420 Puts at 70.25; that�s 25 cents of profit for them (give that GOOG does not go above 420 by OE).

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    • Not a chance. It would have taken 10 million shares to hedge the delta in those ~100k puts. That did not happen. The trade is still a mystery to me.

      • 2 Replies to ferretmoney
      • Time and Sales for 420 and 430 below. Looks like a bunch of trades hit near the same time near the close. Looks like they did not happen in the market, much like huge blocks that show up in AH on the underlying.


        Time and Sales for .GOPNF (430 Puts)
        Date Time Exch. Size Price
        2/14/2006 16:13:21 PSE 3619 87.00
        2/14/2006 16:12:13 PSE 3619 87.00
        2/14/2006 16:09:40 PSE 3619 87.00
        2/14/2006 15:57:51 2 87.20
        2/14/2006 15:53:42 CBOE 500 87.00
        2/14/2006 15:53:31 CBOE 500 87.00
        2/14/2006 15:53:20 CBOE 3000 87.00
        2/14/2006 15:53:09 CBOE 3000 87.00
        2/14/2006 15:46:16 AMEX 2 86.60
        2/14/2006 15:45:03 1 86.00
        2/14/2006 15:44:49 2 85.80
        2/14/2006 15:44:04 PSE 3501 85.70
        2/14/2006 15:43:55 PSE 3501 85.70
        2/14/2006 15:29:23 PSE 3600 83.90
        2/14/2006 15:28:57 PSE 3600 83.90
        2/14/2006 15:09:43 CBOE 1 85.00
        2/14/2006 15:07:59 AMEX 1000 84.50

        Time and Sales for .GOPND (420 Puts)
        Date Time Exch. Size Price
        2/14/2006 16:13:17 PSE 3529 77.00
        2/14/2006 16:11:08 PSE 3529 77.00
        2/14/2006 16:10:10 PSE 3529 77.00
        2/14/2006 16:01:05 PSE 1000 76.90
        2/14/2006 15:55:39 PSE 1000 76.90
        2/14/2006 15:53:20 CBOE 3500 77.00
        2/14/2006 15:53:09 CBOE 3500 77.00
        2/14/2006 15:44:04 PSE 3501 75.70
        2/14/2006 15:43:55 PSE 3501 75.70
        2/14/2006 15:40:34 5 75.30
        2/14/2006 15:14:49 10 74.40
        2/14/2006 15:07:58 AMEX 1000 74.50
        2/14/2006 14:58:45 4 74.50
        2/14/2006 14:57:11 4 74.50

      • Maybe they were not hedged with straight GOOG stock. Maybe they were hedged with a combination of GOOG stock, other GOOG puts, or even other products such as MNX, OEX options or E-mini futures options. Hedging can get complex.

 
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