I'll Take My Profit Up Front With A Side Of Curly Fries (SDRL)
Since no one knows what's going to happen with SDRL 4 minutes from now much less 4 months from now I figure I'll take the cash up front.
Today's proposed trade:
What actually happened:
For those of you not that familiar with the way PUT options work, here's what happened. For an investment (or wager depending on your POV) of $19,687.50 (the dollar requirement) I then received a premium of $8,135.07 net/net of fees and commissions to commit to taking someone else's shares @ $3.50/share on Feb 17, 2016.
What's that translate into in terms of dollars and donuts?
$8,135.05 / $19,687.50 = +41.32% IMMEDIATE Income Profit.
Not a bad net return for 6 weeks "work".
I can spend it or I can reinvest that premium today to increase my net profits....
Not bad compared to a "buy and pray" strategy. JMO of course.
Q: How long is my $ actually at risk?
A: Until the options expire (Feb 17, 2017)
Q: What could happen?
A: Only 4 things:
1) The SDRL stock price is over $3.50 on the expiration date (Feb 17, 2017) and the options expire, I keep the premium, my "dollar requirement" is released to be used again
2) The SDRL stock price is under a little under $3.50 on the expiration date (Feb 17, 2017) and I roll the shares out to March 31 for a net credit
3) The SDRL stock price is a little under $3.50 on the expiration date (Feb 17, 2017) and I let the shares be put to me and sell calls on them for March 31
4) The SDRL stock price is way under $3.50 on the expiration date (Feb 17, 2017) as the stock price has collapsed, the shares are put to me in the middle of the night, and I take solace as my net cost of shares is only $2.85/share, and then I think of something else to do to save myself.
YRMV of course
Disclosure: I am/we are long EVERYTHING.
Additional disclosure: Just show me the money honey