HOLLYWOOD STOCK EXCHANGE
THE ENTERTAINMENT MARKET
THE ENTERTAINMENT MARKET
Yes, but it depends on whether the movie's OW makes the strike price. If it makes more than the strike price, the put will cash out at zero
and traders holding it short will profit. Their gains will be the put's price at halt, multiplied by the number of shares they hold. But it's a small gain.
However if the OW is less than the strike price, then traders holding the put short risk losses.
Taking a real life example. WOLV2.PU has a strike price of $65 and a current price of $0.85. We'll assume the put halts at that price.
Let's say WOLV2 makes $65M or more on opening weekend, the put will meet its strike price and cash out at zero. Gains to traders holding it max short will be 0.85 * 20,000 = $17K.
But, say WOLV2 tanks and only has a $50M opening weekend. The put would cash out at $15, and the losses to traders holding the put max short would be (15-0.85) * 20,000 = $283K.
So, by keeping the put short at halt, you can make some small amount of money if the movie exceeds the strike price. However, you are also running the risk of significant losses if the movie flops.
About Derivatives: what happens if i keep a security short by the time the stocks have halted? how they cash out? (cont) Jul 25, 10:14
Puts cash out the Monday after the opening weekend of the relevant movie, sometime after 4pm Pacific time. Jul 25, 11:03
Thanks, but i know that. What i don't know is when you have a put on short, what happens? (cont) Jul 25, 11:34
Yes, but it depends on whether the movie's OW makes the strike price. If it makes more than the strike price, the put will cash out at zero Jul 25, 11:55
Thanks for your time, excellent explanation. Very clear, that's what i needed to know :) {nm} Jul 25, 12:07
Why short a put? Jul 26, 17:51
If you think it will cash out at zero. {nm} Jul 26, 22:35
Thanks, still new here (nm) Jul 27, 09:07
It is as Ndmaster says, but also, you can play with the market flow.(cont) Jul 27, 09:40
