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Biodel Inc. (BIOD) Message Board

  • turquoisehue turquoisehue Oct 15, 2010 10:05 PM Flag

    If Most Are Looking For A CRL, Why Are Puts Expensive?

    Seems very contradictory to me. The majority
    long and short think a CRL is almost automatic.
    Not me.

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    • If implied volatility is high, which is the case of any binary event, both call and put options will be expensive.

      Think about this, if they are not expensive, people can just buy both the call and the put and make riskless profit!

    • A little kind advice -- never invest in anything you don't understand, and you obviously don't understand options pricing. Read a book on options pricing and trading before buying or selling puts or calls. Learn about implied volatility. If you are going to trade options on biotechs, you need to understand that implied volatility is extraordinarily high right before PDUFA, and it will drop like a rock after PDUFA. So if you have a position that is sensitive to volatility, you can get burned really bad if you are on the wrong side of the volatility play. In short, you can really get burned if you don't know what you are doing trading options. In the meantime, stick to straight stock, and don't buy on margin.

      • 1 Reply to patrickmdom
      • I invest what I understand and that is stocks.
        I do not trade options at all. I was looking
        for an answer to an options question however.

        I do know enough that options are high
        especially now. But again, my point was if
        most think that this is a slam-dunk in a
        negative way, the price of the options did not
        necessarily agree with that. I have close
        friends from childhood that are in the
        business, here and internationally, and they
        noted how expensive the puts are. They also
        are long.

        I maybe shouldn't have asked that question,
        but I, along with many others get frustrated
        with all the bashing that goes on. Again,
        I just stick with straight stocks. I do
        thank you for the advice. GL

    • It's obvious - if you sell a put (to open a contract) and the stock price drops below the strike, you may be put the stock at any time. If it's below the strike at OpEx, you WILL be put the stock.

      Puts are expensive because the sellers won't take that risk until they are offered a price they believe compensates for that risk.

      A CRL would almost certainly cause a drop in price; how much is anybody's guess.

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