Re: The details of my Big Bet against Krispy Kreme
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49 KKDQU ($7.50 May) bought at 35 cents, cost $1,715
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13 trading days till expiration... the April catalyst didn't cause the desired effect, no new catalysts till July...
options worth .10 (maybe .15)... so this is roughly a $500 decision...
What's the EV on this Push or Fold decision??
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The rational decision seems to be fold (sell at .10). But there are also random catalysts that could happen (CEO resignation, liquidity crisis, or just gradual realization co. is in bad shape causing a two week stock slide, etc) in the next three weeks. Assume the random catalyst would produce a stock price of $5 (where it traded two months ago), adnd an option value of $2.50.
Essentially my upside is huge (25x) for an unlikely event. Is the event a 25-1 long shot? I don't think it's that unlikely, I'm thinking it's closer to 12-1. I'm reading "fooled by randomness" right now, and just finished a chapter where he talks about taking small losses looking for big, but unlikely, events. Makes one think about how much value is in these options, even if they are highly likely to expire worthless.
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