SCO's quarterly filing [LWN.net]

SCO's quarterly filing

Posted Sep 18, 2003 17:29 UTC (Thu) by pimlott (guest, #1535)
In reply to: SCO's quarterly filing by bastiaan
Parent article: SCO's quarterly filing

Caveat: I have never traded options. Put options seem problematic to me. First, there is an exercise date, so you need to estimate how long SCO can get away with this. Up to a couple years seems possible to me. Can you typically get options that far out? Second, in order to exercise put options, you need to buy stock on the market. What if there is no SCO stock to buy at that point? Like I said, I don't have experience, so maybe options have a provision for that, but be careful.

A simple short would seem to me more sensible. As long as you don't leverage yourself too much, all you have to do is sit back and wait for SCO to fall. However, I don't know where to borrow SCO shares to short. My major on-line broker doesn't have any. Does anyone know?

(Log in to post comments)

SCO's quarterly filing

Posted Sep 19, 2003 1:10 UTC (Fri) by giraffedata (subscriber, #1954) [Link]

Nobody exercises a put option. You just sell it back to whoever wrote it (effectively -- technically, you just sell it in the market).

A simple short would seem to me more sensible

It looks to me like that has identical problems. First, when you borrow stock to short sell to someone, that loan has a due date. You have to reacquire the stock and give it back before then. So that's the same as a put option expiration. Also, if no stock is available to buy when the loan comes due, then what? (Actually, I don't know -- in either the put or short sale case).

At least when you buy a put option, your downside is limited to what you paid for it. Short selling has no downside limit.

SCO's quarterly filing

Posted Sep 26, 2003 22:08 UTC (Fri) by pimlott (guest, #1535) [Link]

Nobody exercises a put option.

What do you think you do with options, just admire them? Of course you exercise them, whether put or call. You can trade them too, but ultimately a put option is valuable because it lets you sell at a given price in the future.

It looks to me like that has identical problems. First, when you borrow stock to short sell to someone, that loan has a due date.

I have never heard that, and have read that a short may be held indefinitely. Moreover, I have by now managed to short SCOX, and there is nothing in the transaction about a due date.

You have to reacquire the stock and give it back before then. So that's the same as a put option expiration.

Not exactly: With a short, you borrow shares and sell right away, so you've already got your maximal return in cash. With a put, you don't sell until you exercise, so you absolutely need to be able to buy then (unless options have some escape clause for this case).

Also, if no stock is available to buy when the loan comes due, then what?

I don't know either, but it stands to reason that if the stock has been delisted, the person you borrowed it from won't want it back very badly. Anyhow, since you can cover a short at any time, I don't have to wait until it's delisted.

Short selling has no downside limit.

That's silly--I just tell my broker to cover if the price hits a "stop". Voila: limited downside.

SCO's quarterly filing

Posted Sep 26, 2003 22:20 UTC (Fri) by pimlott (guest, #1535) [Link]

Actually, I don't know -- in either the put or short sale case

Thinking about this some more, I doubt it's a problem in either case. If a stock is delisted, put options are still valuable to whoever's stuck with shares at that point, so you should be able to sell to them for nearly the full exercise price. After all, with either a put or a short, being delisted is the natural extreme of what you want to happen, and it would be perverse if you couldn't cash out.