Someone placed a huge bet today. A straddle involving 7200 contracts each on the April 12 Calls and Puts
That is presumably a long straddle but who would buy those Puts for so much money right now unless they were absolutely sure the stock will be below 7 or 6 by April 20th? Or did they sell those Puts to buy the calls on the cheap and expect the Pus to expire worthless and the calls to be very pricey by then? Either way is extremely risky or someone knows the odds are in their favor for a huge spike or drop in price before the expiry date. Any options experts care to comment on that big play today?
you would do this when you are out of shares to short and need some.....
Reverse conversion - In a typical reverse-conversion transaction, a brokerage firm short sells stock and hedges this position by buying its call and selling its put. Whether the brokerage firm makes money depends on the borrowing cost of the shorted stock and the put and call premiums, all of which may render a return better than the money market with very low risk. In the context of futures markets, a trader would be synthetically long and short the underlying futures while looking for arbitrage opportunities.
rckings99- Thanks for the explanation. It's basically an arbitrage technique that hedge funds use to manipulate the stock to their liking. I knew this was NOT a simple retail trade! I was speculating that the Puts were actually sold and the calls were bought but didn't think about the underlying reason one might risk that. Makes a lot of sense now.
Rcking is exactly right - its a reverse conversion by shorts who are OUT OF BULLETS (shares to sell short). They now can presumably dump 720,000 more shares on the market to suppress/depress the price.
Longs can buy them up in a basically riskless investment ~ if pps goes down, shorts will cover for quick profit bringing the price back up. If pps goes up, shorts will be forced to cover causing the pps to run higher.
Games--its always games! its been going on for months!
It simple for me--with cash hold my core and buy shares to trade everytime they drop this with their games and then either flip them higher for profit or sell some and keep some, adding to the core while never selling any original core. Then you ignore the oscillation in terms of the PPS cycling, knowing the news is coming on many fronts! They can straddle this! And it works too!