As a former options trader, I was curious about the pricing of put options on the first day the stock trades as DJT.
If you’re not aware, put options give you the right to sell a security at a fixed price on or before a fixed date. Basically, if you think the value of that security is going to go down, you can buy a put option to place a bet on that outcome. If you’re right, you can multiply your money several times over; if you’re wrong, all you lose is the premium you paid for the option.
Most investors buy puts as a hedge against the value of the stock they own. But when a stock is difficult or impossible to short – as DJT is – buying puts is the only way most investors can bet against a stock. The more doubt people have about a stock, the higher the volatility, and the higher the prices on puts will be.
So … DJT put prices aren’t the craziest I’ve ever seen, but they’re pretty crazy. The stock closed at $58 today. Some highlights:
- April26 40 puts (sell stock at $40 by April 26) closed at $9.10. So if you think the stock will be below $40 by the end of April, you can buy that put and your break-even would be $30.90 – almost a 50% drop from today’s close in just five weeks.
- June21 40 puts (sell stock at $40 by June 21) closed at $16.00, just $7 higher than April but buying you almost two more months. So your break-even would be $24. This seems like a good buy to me.
- Sept20 20 puts (sell stock at $20 by Sept. 20) closed at $8.27. So think about that. Six months from now, when DJT can sell his shares, you’re looking at a break-even of $11.73. The stock has to lose 80% of its value for your bet to be a winner.
- Sept20 2.5 puts (sell stock at $2.50 by Sept. 20) closed at $0.23. If you think the stock will be worthless in six months, 23 cents will make you $2.27.
TLDR: Wall Street is skeptical, to say the least.