Friday, August 18, 2006 11:05:04 AM
The sellers strategy would be this: Sell those puts short and naked now and collect the $2.50 premium. Wait. Assuming the FDA hold is lifted sometime in October, the price will likely rise to or above $5. When the options expire in mid-November and the stock is priced over $5, the option seller never has to cover his short. If for some reason, the stock goes lower, the seller has limited loss protection because the stock can't go below zero. But, would likely close his postion for less loss (buyback the puts for $3.50/ stock at $1.50) when the stock has some remaining value.
It's a pretty smart strategy.
MF4
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