I am new to options, but was just looking at SKUL options and was wondering if I saw a good opportunity. I'd love it if someone with experience can comment. I will make my own evaluation of whatever is said, so don't worry that I'll trade on your advice.
I looked at the long term options. I was interested in those because I think that Skullcandy will be sucessful with their turn around longer term, but may be more volatile in the near term and I would like to get a better entry price to SKUL by entering a long term option. What I did was to look at strike price minus the bid price for the Jan 2015 put options to get effective net buying price, if assigned.
It looks like the $15 option is the best deal. Isn't the bid too high compared to the others? There is a $10.20 profit potential per share with a net cost, if assigned, of only $4.80. To get a lower net cost you have to drop to the $10 strike which gives a much smaller $5.30 net profit potential. To me this looks like a much better opportunity than buying the shares, if you are not a trader.
If you're new to options then you are better off not selling puts.
First and fore most...
1) Do not sell long dated deep in the money puts. It is a terrible strategy... You're much better off selling out of the money PUTS and if you want additional leverage then use those proceeds to buy long dated calls. This strategy is called "Risk-reversal"
2) If the stock moves up those calls will go up in value much faster than the decay in your PUTS. In short, even if the stock moves up the implied volatility on the pouts will go up and you are better off owning the stock and have better % gains
Selling naked puts is a good strategy when the volatility is pumped up on out of the money puts (Generally before a material event like earnings) and even then you should try to sell options that expire within 6-8 weeks that will decay rapidly (Unless you need more time for your thesis to play out)
Anybody have Level 2 access for options? I don't. I see 79 on the bid for these options. How many are bid at $10.30 and $10.20? I'm curious how much opportunity there is here. The bid was $10.20, but jumped to $10.40. I'm curious if this is the best opportunity or if there is more at $10.30 if I take more time to decide. Why not comments from others?
#$%$! All gone. Bid is way down to $9.90. What happened? Was there a single aggressive and stupid buyer? I only sold those 6. Who else sold? Must be someone. I got two thumbs up and the volume on those puts is now 100, not 6. That seems like more than a coincidence. Did other(s) just happen to see the same opportunity that I saw? Maybe I'll keep my mouth shut next time until I finshed buying or selling.
Some of the bids have gone up. $15 strike for 2015 puts still is definitely the best option to sell. Now the net cost per share would be only $4.60, less than the 52 week and all time low. Seems like a no brainer. I just sold 6 for a start to pocket $6240 in premiums. You can see my trade on the volume. I want to sell more, lots more, but hope that I am not misinterpreting this opportunity.
Anybody else care to comment? If you are planning to hold this stock long term, why would one buy the stock rather than sell this option? You can also trade the option, but it will not be as volatile as the stock, since it is so far out of the money.