Vincent Fernando

ADP: Getting Paid For Walking Away

Thanks for the comments, I'll take a look at the articles. But when understanding the article, I think you need to consider IRR. The puts I am talking about give you a 32% IRR on your exposure of $34. The Jan puts you mention give you 14.4% on your exposure. The Jan puts aren't bad, I like the idea as well. And sure you have more downside protection in terms of break-even. But the puts I mention have more than double the IRR. There are tons of opportunities out there in the current markets. The Jan puts lock me into a potential commitment for quite awhile. The June puts lock me in for only a month. After June I can redeploy the capital, maybe even selling the same Jan puts you mention or just buying ADP outright. Or something completely different that is available. It may look like "nibbling" as a single trade. But imagine a diversified portfolio doing this and rolling positions, welcome to one of our strategies. If you target these kinds of opportunities, 32% IRR is far from nibbling. The caveat is that you need low transaction costs.