HOLLYWOOD STOCK EXCHANGE
THE ENTERTAINMENT MARKET
THE ENTERTAINMENT MARKET
There ARE differences between shorting a put and buying/longing a call....
Think about it theoretically....
As we know, a "put" option is an option to sell a security at a given strike price, and you purchase a put because you think the true value of the security is much lower than the strike price. On HSX, people purchase puts because they think the movie will underperform/flop. The harder you think a movie will flop, the more you're willing to pay for that put option. Basically, you're more pessimistic than the market on it.
When you "short" a security, you're thinking that the security is overpriced. Therefore, when you short a put, you're saying that the movie is not going to flop as bad as people think. Now, on the other side, you buy a "call" option because you think the movie will overperform and gross more than its current price. When you buy a call option, you're more optimistic than the market on that stock. But that's NOT necessarily the same as shorting a put.
What's the difference? Well, shorting a put means that you think the market is overstating its pessimism on a movie; it does not necessarily mean that you think a movie will perform well -- it just means that you think the movie won't tank as much as others think it will. Longing a call means that you're more optimistic than the market on a movie, rather than merely being "not pessimistic" about the movie. You can be "not (as) pessimistic" about something without being "optimistic."
For example, let's say Movie XYZ is currently projected to open at $10-$12 million this weekend. I'm pessimistic and think it'll open at around $6-8 million. A put option, with strike price $10 million, is on sale for $5, and a call option, with strike price $10 million, is on sale for $5. For the put to make any money, Movie XYZ must open at $5 million or less, and for the call to profit, XYZ has to open at over $15 million. What do I do? I short the put, but I do NOT long the call. Yeah, I'm pessimistic, but I'm not pessimistic enough to think it'll tank at $5 million or less, and I'm certainly NOT optimistic at all since I don't think it'll open at more than $8 million, let alone $10 million. By shorting the put, I make money if it opens between $5-$10 million (and lose if it opens outside that range).
Shorting Puts vs. Buying Calls Jul 12, 13:34
this makes my brain hurt {nm} Jul 13, 09:46
It is a way to make 2 bets at the same time..... Jul 12, 14:06
Great insight on two great players.. THanks {nm} Jul 12, 20:52
In my experience, the higher the strike price, the more worthwhile the double long strategy Jul 13, 04:54
Thats true. Hasn't been a lot of play on some of these {nm} Jul 13, 09:13
Is there some sort of guide I need to be reading for call and put strategy? {nm} Jul 13, 09:47
There ARE differences between shorting a put and buying/longing a call.... Aug 01, 18:16