Concordia Healthcare Corp. T.CXR.R

RE:RE:RE:How can it be done

[Marcel7]

Quite true. I didn't mention the puts as the question was asking specifically how they could make money on a big price spike while maintaining their short position. But yes, you are quite right, they could supplement that by selling some of their potential profits on a drop by selling puts as well. If they want to close out their position selling a put and buying a call is essentially equivalent purchasing a share at that price (it is called a synthetic long, payout is equivalent to holding a share), thus neutralizing their position. Marcel

CNInvesting wrote:

Marcel7 wrote: Hi Roller, They can hedge their position with options just as longs can. They purchase call options at various strike prices so that if the SP rises above that their losses are capped. So technically, they can still hold million of shares Short and be fully covered by options, in order for this to be the case though we would need to see more open interest, as the current total number of call options falls well short of covering the shares Short. In order make money off of options on a price spike however they would need to hold more call options than they have shorted shares. Marcel

Marcel is spot on. I'd like to add that the bigger part of the options market on CXR is on the Nasdaq. In June alone, there's open interest for the OTM strike range of $35-$45 for a total of 1,720,000 options (shares). 

July is nothing to be alarmed with but August on the other hand has also lots of open interest. I see OTM strike range of 35$-55$ for a total of 1,379,700 options ( shares ). 

However,  like Marcel said, to make money they'd have to hold more calls than shorted shares ( net return wise ) but I've noticed that there's a lot of puts also for the same June and August periods. In June, we've got OTM with a strike range of $30-$25 of 1,228,200 options ( shares ) and in August, it's nothing major.

Marcel said that the shorts would need more calls than shorts to make money, and it's true, but if they hold the current puts, they could already be making the money, but just on the sell side once more.

Whatever the period though, the open interest is very spread out on different strikes. I don't know if reading into this is necessary, as it could be nothing abnormal.

GLTA