Comment by toomuchtodo
4 years ago
Be careful with those puts. It’s entirely possible to be right and still not be able to close out your position because the underlying is halted/delisted.
4 years ago
Be careful with those puts. It’s entirely possible to be right and still not be able to close out your position because the underlying is halted/delisted.
The market can stay irrational longer than you can stay solvent
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.
This is not even that. The parent is talking about the case where the stock does indeed go to zero and get de-listed from the exchange, in other words the market becomes rational. At that point, you're holding put options that are ridiculously in-the-money, but you can't execute or sell them to take your profit because the underlying stock is gone. So, your highly valuable stash of Nikola puts becomes worthless ...
Someone correct me if I'm wrong, but I'm pretty sure that's not how it works. If it gets delisted, you would buy the pinks to get the shares. The stock doesn't just disappear when it's delisted.
Halts are temporary (generally a few hours to a few days). If it's delisted from NASDAQ it will almost certainly move to another exchange (OTC / pink sheets) and the stock will still trade.
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...