Ok, that makes sense. Thanks. I guess that is why it is important to compare the share price to NAV.
Only buyers of puts have the option to exercise, and that is the exercise to sell at the strike price. If market is lower than the strike price, the buyer already made the spread and just have to sell the contract. They don't have to exercise (sell the physical shares) when they made money, it's just a hassle. Someone exercising would have to buy the shares on the market in order to resell it at the strike price which is a waste of time when you could just sell the contract which is priced at least by the spread of market and strike and make the same profit. Get it? No one exercises a put.
A Put is a contract to sell shares, not buy. This person is in a contract to sell shares at $2 because they think the market price is going to be less than $1.80 on November 16th. Why are you saying they are accumulating a block at 1.80? That is not what a put contract is.
Um...I just showed you how it works, and I assumed the worse: i.e. assuming a .25 loss on all shares. In reality, this investor lost less because they sold much in between 2.30 and 2.05....they didn't sell all of it at 2.05. Also, I assumed the worse in that they sold an amount of shares equal to the Puts gain, when in reality they didn't need to and can realize a gain in the price. I assumed the worse to make the math easy for you.
What you completely missed is the fact that they can re-enter at a much lower price without any cost, which can only lead to greater gains once PATH goes up. It doesn't matter how much PATH goes up, the person who entered at $2.05 will have greater gains than the person who entered at a higher price.....it is simple math. This investor will ultimately cover their losses at a share price 25 cents lower than whatever their original entry average was by doing the above, and they are achieving this at little cost and possibly a gain.
Like it or not, this is a strategy, it's been around for a while, it makes people money, and I didn't invent it. Just wanted to share my experience to try to make sense of the past week in PATH's share price for those on this board who are scratching their heads.
OK. this is how you make money on a Puts trade like this. Let's say an investor who owns PATH wants to begin at an entry point much lower than market. You purchase the 2,500 PUTS at .20, sell a ton of shares into the downward momentum (and there was downward momentum before this trade), sell the puts for a profit, then purchase shares of PATH on sale.
These Puts are now at .30, which is a 50% profit, or $25,000. Between Oct 9 and today, PATH lost .25 cents, so this investor could have potentially sold 100,000 shares between Oct 10 and today (loss of $25,000), close the position on the puts, and still break even. Now this investor can come back into the market with an entry point at close to $2 and look like a star when PATH goes back up. This happened over the summer to SID; large order on the put side when the stock was already cheap, stock took a beating for a month, then it doubled. I'm sure the person who bought the puts was behind the beating, and I am positive they made a ton of cash.
Can someone with more knowledge than me please explain how you can have a 1.95 dividend when only making 9 cents earnings. I am not verse on these MLPs, and would appreciate it if someone can explain what I am missing.
Just bought August 2 Calls for .65; only 4 cent premium to the market price right now. That is a good bet. Let's say in the next week SID recovers it's loss today, which at the moment is -.16, and SID is back to 2.77. That is a 12 cent gain on my 65 cent investment, or an 18% gain. If there is a short squeeze on this stock, this Call is going sky high. And I have 47 days for this to happen. I think it is a good bet; my opinion.
""Funny, people have been saying that all the way down. As GNK falls, it doesn't seem to diminish its attractivness because people are always lagging on what factors are dragging this stock down.""
I guess those people were wrong, but at the moment I am not. There has to be a bottom at some point, and unlike the horse & buggy and the typewriter, dry bulk is not going out of style. This is a long term trade, and buying at todays prices can yield 30% to 80% in the next couple of years. Not sure where you are going to find a return like that. I remember in the late 90s when oil stocks, including drillers and services, were beaten down just like the dry bulk industry today. I said, "is oil really going out of style.....no." Guys like you said "you have to understand the factors", as tankers sat parked and were being used as storage. And I bought. Those stocks tripled. You buy into an industry when it is beaten down, not when it is high, and you hold long term, not a day trade. I think at todays prices buying a basket of drybulks, with GNK included, is a fine long term investment. You can argue, but only time will tell.
Win Win situation for TBT. T-Bills will sell off in both situations. Debt problem, ratings lower, tbills will sell off, or at the most not move. Debt ceiling passed, stocks rally, t-bills sell off as stocks take off. That is sound logic.
Any chatter of a merger or takeover target? Cantor, Wells, and Deutsche all downgrading when GNK is less than $6.80, yet they were fine when it was $7, $8, $9, $10, $11. Are they just late, or are they trashing it to reduce the price even further so their clients and country club buddies can accumulate before some major news or pop in price. I never understood how these agencies cut ratings well after a stock's price tanks; they are crooks. GNK is not a good investment at $10, but at these prices, it is a steal. Dry Bulk is not going away.
You write,"When the market goes down, people panic and go into bonds, which causes the yield to go DOWN." You are correct, but not in this situation. The problem is the bonds and the ratings of the bonds; where have you been the last few weeks?
You say use SOUND LOGIC, yet your logic is not sound; the US bond rating gets cut so bonds go up? Bonds will go down along with the stock market. It doesn't happen often, but it is not unusual at all for the two to go the same direction.
I would like to read everyone's opinion on this. It seems in the short term that TBT will do well. During the debt debate, treasuries should sell because of fear. When this thing is resolved, we will see stocks rise, which is usually followed by treasuries selling off. Seems like near term is a win win situation for TBT.
Makes sense in some situations, but not in this environment. Unemployment up, projections for growth down, cuts in government spending adding to a slowdown, and no solution to the Europe problem. This is 2008 all over; i.e. remember the Fed cutting rates because of the threat of a crisis....don't fight the Fed and buy stocks was the call of the day. That didn't pan out too well. Buying a retail ETF today because oil is going down in today's environment is a bad call.
The world is falling apart today......but the retail ETF XRT is rosey??? The activity this morning needs to be investigated. I actually called my broker to ask if there was a computer error. It doesn't add up.
OK, I understand the limitations of these ETFs, but the price of oil is up close to 4% and in theory the ultra leveraged etf should be up 3x that ; i.e. 11%. Meanwhile, DIG is down. I don't expect this ETF to be accurate, but come on.....can't it come close to doing what it is supposed to do?
Today is the result of very smart institutional traders. Knowing today's price is as high as DSCO will be before approval, these traders are playing safe and selling. They bought at .80-1.20 and do not need to hit a home run; they made their profit. Other traders knowing this also sold in order to trigger all of the Stop Orders made in case the there is no approval, sinking DSCO even lower so that they could accumulate even more when everyone else in in a panic. This is no indication for approval, just a way to make money, and they did. If you are going to put in a stop order, tomorrow morning is the time to do it. As far as the ones who did already and sold, you lost out on the coming approval.
Thanks yadahaven, I see. That was the prior quarter of this current quarter. That was the quarter that our kids will be reading about in the history books; "the crash of 2008". I am not sure anyone was buying anything October and November, and anyone leveraged was selling all dead weight; DSCO being dead weight with it's April 17th review date. The insiders were buying in that quarter, as you mentioned. And though you ridicule their purchase, I think it was a heafty sum of money. These are insiders at Discovery Labs, not Merck; not exactly making the big bucks. Check out some of the other links posted. This quarter is showing more buys than sells.
jpalarski, good sites. I guess there has been some sales. I think I was looking at insider institutions on my site (insidercow.com). Still, it appears that more shares have been bought than sold in the past few months by institutions. I am curious why DSCO isn't rising with april around the corner.