I’m not big on trading individual stocks, but I own a bunch of long puts on Nikola. I don’t know any other company that seems as likely to go to zero (other than companies like Hertz, where everyone knows so the options are priced appropriately).
I think the flood of retail investors with disposable income and government benefits is leading to absurdities in market pricing. See: Hertz skyrocketing after announcing bankruptcies.
After all, the stock has dropped 90%, how much lower can it go right?
Well, to the new investors, all the way to 0.
If the stock truly is wiped out and common shareholders equity is 0, you can exercise the put, receive 100x the strike value per contract, and deliver nothing.
Source: https://www.optionseducation.org/referencelibrary/faq/splits...
How long will the fraud last? Isn't your return limited by the difference available under the put?
I generally stick to calls because it's way easier to make money in a company you know is good and it's easier to capture the upside (Peloton for me recently).
Market seems skewed this way, it's a lot harder to correct the price even when you know it's total bullshit. Seems likely to allow frauds to go on longer.
- Subscription model makes sense and is sticky with good margins.
- Undercuts gyms while providing better experience.
- Well timed growth during pandemic.
If I use a product and think it's really excellent I'll check out the stock and the company. This has largely worked for Apple, Tesla (bought in 2012), and now Peloton.
It is. Max profit when stock prices hits zero. It can be still a massive return compared to the premium invested.
Assuming the house of cards falls before expiration, of course.
Premiums are rather high on NKLA puts too.