The details of my Big Bet against Krispy Kreme

[Sniper]

[ QUOTE ]
no 2+2ers buy any donuts for the next year.

edit: anybody mind explaining one of these lines a little bit, how you figured the cost and how to figure the gain and loss with different outcomes.

[/ QUOTE ]

Each option contract represents 100 shares, the cost is per share equivalent, so multiply the cost of the option by 100, then multiply by the # of contracts, to get the total cost.

Example...
100 YRDMZ ($2.50 Jan 08) bought at 45 cents, cost $4,500
100 contracts * $0.45 * 100 shares = $4,500

[mother_brain]

[ QUOTE ]
49 KKDQU ($7.50 May) bought at 35 cents, cost $1,715


[/ QUOTE ]

Thanks,
now you win the bet if the stock is below 7.50 on May 1st, or anytime before May?
How do you figure the profit if you're right?
And you lose it all if you're wrong?

[Sniper]

[ QUOTE ]
[ QUOTE ]
49 KKDQU ($7.50 May) bought at 35 cents, cost $1,715


[/ QUOTE ]

Thanks,
now you win the bet if the stock is below 7.50 on May 1st, or anytime before May?
How do you figure the profit if you're right?
And you lose it all if you're wrong?

[/ QUOTE ]

The options expire on the 3rd friday of the month...
In the example quoted above, He paid 0.35, for the 7.50 May put, so the stock has to be below 7.15, for him to show a profit.

If on the 3rd friday of may the stock is trading at 7.50 or above, the option will expire worthless.
If the stock is trading between 7.50 and 7.15, the option will have some value, but still a loss on the trade.
If the stock is trading at 7.15, he breaks even (-commissions).
For every penny below 7.15, he makes 100 shares * 49 contracts * 0.01 = $49 profit

If the stock is trading at $5 on the 3rd friday in May...
100 shares * 49 contracts * 2.15 = $10,535 profit
and all his later dated options would also be showing a profit, as well.

[mother_brain]

Thanks for taking the time to explain that.
Interesting to say the least.

[DesertCat]

Ok, I should be done buying (for now). Total investment about $20,460, total commissions probably $400.

49 KKDQU ($7.50 May) bought at 35 cents, cost $1,715
50 KKDTU ($7.50 Aug) bought at 85 cents, cost $4,250
50 OKKMA ($5 Jan 07) bought at 45 cents, cost $2,250
100 OKKMZ ($2.5 Jan 07) bought at 15-20 cents, cost $1855
50 YRDMA ($5 Jan 08) bought at $1.15/1.20, cost $5,900
100 YRDMZ ($2.50 Jan 08) bought at 45 cents, cost $4,500

[Nomad84]

I hate to tell you this, but you're making me really hungry for Krispy Kremes... [img]/images/graemlins/smirk.gif[/img]

[DesertCat]

[ QUOTE ]
I hate to tell you this, but you're making me really hungry for Krispy Kremes... [img]/images/graemlins/smirk.gif[/img]

[/ QUOTE ]

One donut won't hurt. But only one! Don't you dare buy a whole box of donuts! One more box and they'll stay solvent for another decade...

[regular]

Let's hope no one buys donuts like this:

http://www.penny-arcade.com/2006/03/01
(scroll to the bottom)

[Nomad84]

[ QUOTE ]
[ QUOTE ]
I hate to tell you this, but you're making me really hungry for Krispy Kremes... [img]/images/graemlins/smirk.gif[/img]

[/ QUOTE ]

One donut won't hurt. But only one! Don't you dare buy a whole box of donuts! One more box and they'll stay solvent for another decade...

[/ QUOTE ]

I may buy a dozen, but don't worry; I'll take full advantage of the free samples. [img]/images/graemlins/grin.gif[/img]

[Sniper]

Link to the KKD Analysis thread