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Deer Consumer Products, Inc. Message Board

  • vol2smile vol2smile Apr 15, 2011 12:42 PM Flag

    Shorts are doomed from option prices

    Sep 2011 $7.5 Call bid/ask = 1.05/1.35
    Sep 2011 $7.5 Put bid/ask = 3.1/3.4

    If you buy call, sell put, even assuming you hit both sides (giving option MM all the bid-ask spreads), you will end up with $1.75 credit up front. For that option pair, you end up paying additional $7.5 to get a long position (stock price higher than $7.5, you exercise the call. Lower than 7.5, the put holder will see the stock to you for $7.5)

    So effectively you get a long stock position of DEER with a cost of $7.5 - $1.75 = $5.75. Ideally if you can short the stock, you will lock in risk free money. But no one can short it now, this strange option behavior only means short sells have painted themselves to the conner.

    As long as no one sells, short sellers are pissed. If the market is efficient, shorts are actually shorting at a price of $5.75. (You can create a long position through option at a cost of $5.75 or better, that's the short's gift to you).

    I only see this once in WMB's option trading many years ago when people are worry about the health of the company, look at WMB now .....

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