The details of my Big Bet against Krispy Kreme

[Sniper]

Yes, but you still have your bet on the longer term options...

You think its got a 12-1 chance of going to 5 in 13 days, for real?

[schnoodleC]

If your going to start talking EV, in terms of poker analogies you should think tournaments to some extent instead of cash games. Our cash game EV decisions assume infinite bankroll (assuming we are playing with a large enough roll relative to our stakes). With investing, you lose not only the money but the opportunity to make money from that money. That is why the #1 rule of investing is don't lose money...

[DesertCat]

[ QUOTE ]
Yes, but you still have your bet on the longer term options...

You think its got a 12-1 chance of going to 5 in 13 days, for real?

[/ QUOTE ]

I have 17 days for events, 13 days for trading. I think there is at least a 10% chance the CEO quits in the first 3 months. I think there is a 20%+ chance of a liquidity crunch before end of July. More franchisees could fold, sue, etc. There are chances of further SEC charges, etc. And there is just the normal volatility risk and risk that large investors hate the new filing and start to slowly bleed out of their positions.

At this point it's a very cheap option and I'm wondering why I don't buy more cheap, short dated puts.

[DesertCat]

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That is why the #1 rule of investing is don't lose money...

[/ QUOTE ]

Warren Buffett would agree. Naseem Taleb would heartily disagree. He engages in option trades that are very likely to lose money every day, because he feels it is almost certain that a huge event will eventually make up all his losses and more.

[Sniper]

Schnoodle... The entire string of option trades is within Cat's risk tolerance, and he went in to this initially, knowing that he was putting his entire "bet" at risk.

However, his allocation among various dates when he made that decision was based on certain events causing the effects he desired and spreading his risk across various time frames.

He now has more information... the April report was released and it did not cause the effect he was looking for that would make the May options profitable... he knew the probability of this when he made his decision...

This is very similar to the flop or turn in holdem... he can decide not to push roughly $500 into the pot (in actuality it is taking back a bet, but the analogy still holds)

fwiw... EV is not only a poker concept... Expectancy is an important part of trading!

[Sniper]

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At this point it's a very cheap option and I'm wondering why I don't buy more cheap, short dated puts.

[/ QUOTE ]

Did you end up taking any action this week?

[shagjohn]

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... Naseem Taleb would heartily disagree. He engages in option trades that are very likely to lose money every day, because he feels it is almost certain that a huge event will eventually make up all his losses and more.

[/ QUOTE ]
These guys bothered to write a whole paper on why the current options pricing model is inefficient precisely because of those occurences: Generalized Extreme Value Distribution ... and Options Pricing (PDF, lots of math)

[DesertCat]

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At this point it's a very cheap option and I'm wondering why I don't buy more cheap, short dated puts.

[/ QUOTE ]

Did you end up taking any action this week?

[/ QUOTE ]

Nope. Missed my opportunity, now it looks like I can only get out at a nickel, so I'm stuck.

[Yobz]

KKD seems to be flying up...any comments? Do you still think they are doomed?

[Sniper]

[ QUOTE ]
KKD seems to be flying up...any comments? Do you still think they are doomed?

[/ QUOTE ]

It seems like KKD shorts are getting squeezed a bit... Cat wasn't the only one looking for the drop from the latest financial release, which didn't occur...