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Skullcandy, Inc. Message Board

  • rajoilprasad rajoilprasad Mar 8, 2013 9:01 PM Flag

    sell 3.00 1/2015 put for 0.75

    if it is put to you your buying price will be 2,25 about 1/sh less than net cash on books; very good risk to reward ratio

    Sentiment: Buy

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    • Not if they don't exist. Take the risk collecting .75 for 21 months, that's no premium to speak of and theta decay will be almost nonexistant for quite sometime.Terrible risk reward, I can find much better weekly option trades in more liquid stocks. Do you have any idea how to calculate the return on this?

      • 1 Reply to glasinc
      • How can you say it's a terrible risk:reward and then go on to say that you don't know how to calculate the return? FYI, the appropriate way to calculate the return is $0.75 divided by the current delta adjusted value of the position and then divided by 1.75 to get the annualized return. You can't just divide by the max capital at risk ($2.25 which is the strike less the premium collected) because they are far out of the money so the delta adjusting (which is a proxy for the chance that the option will end up in the money) compensates for that. In this case, the delta is -0.1014 as of Friday's close (i.e there is a roughly 10% chance that those options will be in the money). Therefore, you are supposed to multiply that by the $3 strike price to get $0.3042 which is the "cost" of the position. So the return is 0.75/.3042 or 147%, which would be 83% annualized. Do you still think it is a "terrible risk reward"?

        Sentiment: Hold

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