wagner2626

Taking Advantage of High Options Prices with Huntsman Corp.

This is a bad trade. When the judge rules, or if there is a settlement, there is going to be a jump in price. By looking at vol and not at what you can make or lose, you fall into the trap that there is a non-continuous market. what if the judge rules Apollo can simply walk away and the stock then falls to 8. (I believe that 9 is the correct level given LTM EBITDA, but think that trading will push it lower as Arbs come out). The stock is currently at 13.6, so for your first idea one would have a gain on the short stock position of about 2pts (13.6 - 8 x 35 delta) and a loss on the option of 4.5 plus the premium of 1.1 for a net loss of 1.4 pts or 127% of the premium.

I think that there is way to many possiblities of a large discontinous gap to be selling options here. In effect, I believe that the prices are correct.