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Re: smlzlykmoney2me post# 231203

Wednesday, 08/20/2008 3:06:33 PM

Wednesday, August 20, 2008 3:06:33 PM

Post# of 433253
For a naked short this option play is a smart move. He always has the right to call the stock and pay $30 per share whether or not the stock price reaches this level. His flexibility extends to the fact that he can 'roll out' this option at a cost lower than the cost of the exercise. Here the critical point is could he purchase a similar call position at a reasonable price. If he can, he will let the older position expire. However, if the market were to tighten and a 'roll-out' is not possible, and he wants to be covered, then exercising an 'out of the money' call option would be a smart move.
The game here is who has the better information or instincts, the call seller or the call buyer? Either way, this is interesting to watch, particularely since we know that not many shorts were likely established at $30 or above.
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