Insuring My LDK Investment By Buying Puts

If you're one of the many speculators who chose to invest in LDK Solar (LDK) instead of going with one of the more stable names like SunPower (SPWR), SunTech Power (STP) or First Solar(FSLR), then you're already in a deep state of shock. As if the false claims of inventory against LSK Solar were not enough, the company is run by a bunch of people who have seemingly done nothing to curb the stock's massacre.

While all solar stocks are going up with rising oil prices, investors in this stock have been going through restless times, never knowing what the next bad news will be. Piper Jaffray downgraded the stock yesterday and there seems to be no end to the stock's decline.

However, after being long this stock for a while, I have a suggestion for the investors long this stock. Please buy some Nov 30 or Dec 25 puts on LDK Solar. Earnings are supposed to come out next Thursday, and if something goes wrong, this stock will go below 30. In that event, you really need to be ready and minimize your losses, and who knows maybe even gain from the transaction.

I bought 10 contracts of Nov 30 calls, and at the price they are right now, they're a really great deal. Your losses are very minimal if luckily enough the stock shoots up, and its worth the peace of mind you'll gain, knowing you're insured against disaster. I hope you realize that the lawsuits against the company mean nothing to you. Even if the case is won, you see very little of what you lost and is hardly any consolation.

Disclosure: Author has a long position in LDK

Comments

[mbs]

Overly speculative, devoid of factual information. This isn't a clearing house for all those who want to show what a neat idea they have. It's obvious you've gotten stuck in a position and are feeling a little pain. That's not news worthy.

[Uncle Bill]

Not only that, he doesn't know what he's doing. Adding long puts to a long stock position turns the position into a long call position. You were long stock, now you're long calls. Plus you paid top price for your puts because implied volatility, which determines option premium, rises dramatically when issues fall dramatically. Nice hedge.

[PrashanthCherukuri]

Uncle Bill,
thanks for the comment However, I am sad to day you couldnt be more wrong than this. I got 10 contracts of Nov 30 puts at 10 cents, which is $100.
I dont know what kind of premium you're talking about here.
And then, even with the stock up 2% today, I am still up 250% on my puts, so either way it was a win-win.
If the stock really does go up, the max I lose is $100.
As for your: "Adding long puts to a long stock position turns the position into a long call". , I dont know what you're talking about here.
Maybe you should read a bit on options.

[PrashanthCherukuri]

Hey Uncle Bill.
I dont wanna call names, but look at LDK stock and the price of Nov 30 puts.
Both you and that other clown didnt know what you were talking about. While you fools are likcing your wounds, I made good money even with the stock going down.
Some people like you never learn.

[PrashanthCherukuri]

hi ALC.
While its overly speculative, it works. Also, I never submitted the article here. I posted it on my blog, and SeekingAlpha would have found it relevant so they added it here.
Sorry you didnt find it useful

[McF]

"I bought 10 contracts of Nov 30 calls, and at the price they are right now, they're a really great deal."

That you claim any LDK options are cheap is farcical. Implied vol. is up 50% over levels from July-August before the lawsuit was announced. With the front month contracts you suggest, you are just going to bleed premium because of the high theta, even if you don't hold until expiration. Your puts might even go down in value following a negative announcement due to the resulting volatility crush.

I assume you are "hedging" against 1000 shares, or about $40k worth of equities, given the 10 contracts you purchased. Given your (mis)understanding of options, I would be very afraid to have you wildly speculating with that kind of money on my behalf.

[PrashanthCherukuri]

I bought the Nov 30 calls at 10 cents, and if you think that is not cheap, I am at a loss for words.
First off, your assumptions are wrong, and so is your theory. I am hedging against 100 shares, or $4000, so if the stock does go to $25 in a month, I will make more than 4K on my options.
As for your last statement, feel free to make your own judgements.

[Michael D]

I'm no options expert but it seems that Prashanth wants to buy 1000 shares when the stock breaks $26 (ideally lower) and then exercise his options on those shares. This will give him a mathematical $4k plus the 100 shares he holds. Isn't this just a long put?

[PrashanthCherukuri]

Finally, a sane voice.
Thanks Michael D for making my point.

[McF]

"I bought 10 contracts of Nov 30 calls, and at the price they are right now, they're a really great deal."

That you claim any LDK options are cheap is farcical. Implied vol. is up 50% over levels from July-August before the lawsuit was announced. With the front month contracts you suggest, you are just going to bleed premium because of the high theta, even if you don't hold until expiration. Your puts might even go down in value following a negative announcement due to the resulting volatility crush.

I assume you are "hedging" against 1000 shares, or about $40k worth of equities, given the 10 contracts you purchased. Given your (mis)understanding of options, I would be very afraid to have you wildly speculating with that kind of money on my behalf.