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On Monday morning, which was just four days ago (but feels like at least a month ago, and I’m serious), I asked the group what happens with owners of options in companies whose trading is halted. The day was too insane for me to check for answers, but thanks to this Forbes article, now I know.
For instance, let’s say that a month ago, you were struck by a vision that Silicon Valley Bank and Signature Bank of New York were totally doomed, and you loaded your entire portfolio into March 17 2023 puts on both of these. And then the news tumbles out, which blasts SIVB to pieces (which this chart under-represents, because the price is actually $0 now)………
I thought I’d write something up to be a little more fundamentally educational rather than making guesses on market or stock directions. There is a lot of excitement recently regarding 0DTE (zero days to expiration) options. I don’t intend for this to be an all encompassing educational post, just a general walkthrough of how Options are priced, how they move, and why these particular types of options are so attractive in this trading environment.
What Is An Option?
An Option is a Derivative contract, meaning its value is based on an underlying security. The 2 key features of a contract are its strike price and an expiration date. A Call Option gives the contract owner the right to buy the underlying security at the strike price. A Put Option is the opposite in that the owner of the contract has the right to sell the underlying security at the strike.
As I type this early Monday morning, stock futures are up, after Sunday’s federal bailouts of depositors at Silicon Valley Bank and Signature Bank. The obvious weather analogy here is the sun coming out after a heavy storm, but the big question is whether that storm was a cyclonic one like a hurricane (or typhoon, for Asian readers) or not. The sun also comes out when you’re in the eye of a hurricane, but it’s followed by a second part of the storm.