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Amarin Corporation plc Message Board

  • A Yahoo! User Nov 11, 2012 8:05 PM Flag

    Amarin Options help please regarding a Buyout

    What is the difference between sell to close and exercising?

    Say I am going to buy 125 AMRN March calls with a strike price of $19. The ask price is currently .80 cents. Say, Amarin gets bought out at $26...

    So for exercising, I could use my right to purchase 12,500 shares at $19 and then I would make 87,500 minus my 10k initial investment. So profit would be 77.5k? is that right?

    If I were to sell to close, how much would the option be worth if it were a buyout of $26? Would I make more money selling to close or exercising? Someone please help.

    Sentiment: Buy

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    • Sell to close closes the position, usually at the bid but you, like a stock, can set the limit price. Options in your scenario is worth 7 dollars, 26-19. If BO is assured and stock is trading at 26. In most cases stock will be slightly over or under depending on chance BO goes higher or never closes. Almost all option traders would close the position as close to 7 as possible and move on the same way most would sell just under 26 instead of waiting out the close. By excercising you get the shares at 19 per share and then can sell or hold the shares like normal. If you excercised you get the common shares, if you close you never hold shares, just the right to them.

      Math is accurate but rarely would an option player exercise in that scenario, they would just buy to close

      The idea with options is you only need to put up 10,000 and earn 7 times your money where buying outright you buy 12,500 shares it costs you 140k. And you make 185,000, nowhere near 7 times but of course stock can go Below option expiry and with call option you lose the entire 10k if below 19 where you make profit with the stock, of course your maximum loss is 10k with options by March.

      Options are a great tool and everyone should use them in some form but take the time to buy some books, well worth it

    • Exercising an option is buying the amount of contracted shares at the agreed strike price. Selling to close the option is most likely selling it back the party that sold it to you (Hopefully for a profit). Its really hard to predict what the options will sell for IF AMRN were to go to 26, but a jump of at least 1000% (yes 1000%) can be expected. For example, I was very bullish on SRPT early in Oct., but didnt want to risk alot of money. At the time I bought the calls SRPT was at around $12. The stock later had a run all the way up to $45 and the calls became hyperinflated by about 20,000%. Options are very powerful when you're on the right side, but one can lose all of the investment on the wrong side.

      On a side note, I bought out of the money calls as well hoping for a short squeeze. I hope alot of people are dumb enough to go short for hopes of the options market to become superinflated.

      In 2008, the day the stock market crashed, I watched Index put options on the Nasdaq go up 10,000% in about 40 seconds. Thats where the transfer of wealth happened in America.

 
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