Some risks of owning put options while not owning the stock, are typically not well highlighted in mainstream options education materials. This is beyond the standard issues with options such as needing to be right in the direction puts or calls , timing before expiration , and magnitude must cover the premium of the stock movement.

If you own put options without owning the stock regardless of whether you are hedging a long position on the stock through calls, or you are just a short seller betting the stock will fall , you can get into a bad situation in the following scenarios:.

The stock is halted for some reason on the exchange e. SEC investigation, exchange requesting for information, company wishes to announce major news such as auditor resignation , and the halt extends past the expiration date. That means that you will not be able to sell your long put position. The key question then is, are you able to exercise your put options during the halt.

There are many websites that say that yes you will be able to exercise your put options during the halt because a stock halt does not affect the rights and obligations of the options contract read here , here , here. They basically advise that when you exercise your put options, you will end up with a normal short stock position, which you can then cover later when the stock resumes trading even if the stock got delisted and trading is resumed at the OTCBB or Pink Sheets.

The OCC also published info memos see example here that even though automatic exercise will be suspended i. All these sound great! The problem that I have not once seen mentioned in these sites is that your particular broker, cannot find the stock to deliver for the exercise of your put options, hence your broker does not allow you to exercise your puts, and your puts will expire worthless.

This can happen with stocks that are already heavily shorted, or stocks with large put option open interest relative to the float. And more often than not, if you are playing a situation where you are using puts, are you indeed in that particular situation. Note however that the situation can be dynamic from day-to-day, it is definitely possible that your broker managed to obtain shares for you to exercise your puts. Long story short, without owning the stock, you can be screwed. After the squeeze, the stock will drop back down again.

If its already so hard to close an existing short position such that short sellers are buying into a squeeze, its even much harder to take two steps to initiate a fresh position then close it even higher. Institutional Holders below RINO blew up: UBS, Bank of America, Deutsche Bank, Barclays and Credit Suisse.

Key points made quoted below: Nov 15, RINO released Q3 results after U. Nov 16, RINO postponed Q3 conference call. Nov 17, Nov 17, Global Hunter suspended coverage due to lack of company response to fraud allegations.

The Company currently intends to re-apply for a listing of its common stock on NASDAQ at an appropriate time after the completion of an independent investigation to be conducted by the Audit Committee. Dec 08, RINO. PK opened on the pink sheets for trading. This scenario is a more typical scenario that people would usually think about.

That is, the stock does not get halted, but it stays at a level above your strike price until option expiration. After option expiration, it can drift down or not. This would be a tough situation because you would have to make a determination based on the facts at that time whether or not to exercise your option, depending on whether you think the stock is heading down.

While buying puts with expiration further out does help, it naturally comes with a high cost.

There is no easy way around this, the best way is to buy your protection when the stock is at a high so that you are buying protection cheap. If the stock fluctuates up and down with high volatility, the recommendation would be to buy more protection than you need when the stock is high, sell the extra protection for a profit when the stock is low, and repeat. If in the event that the stock goes further down, you have the minimum protection that you need.

If the stock goes up, you just make less because of what you paid for the extra protection. Excellent analysis for this special situation. Hope that yourself and others can learn it at my expense rather than your own. I just had a similar situation with CHBT.

I guess I was happy to lose abit, but able to exercise my ITM Put while its trading halted. Thanks for the info. Currently have a small position in some Sino Forest TRE puts. Was wondering the logistics of it, thank you for the rundown.

I will probably short the underlying next time and buy the calls to get similar exposure as the put next time to avoid this. All and all very interesting. This is an excellent writeup. Market makers refuse to quote because of the financial meltdown. Whether the market is open suddenly becomes a primary factor. If the stock is not suspended for trading, the options market makers would always be able to give you a quote.

This is because they can buy the stock from the market, buy your deep-in-the-money put option, then proceed to exercise the put option. This is a very informative article so thanks for writing it. I own some puts on Suntech so could find myself in this situation soon. On a related note, do you know what would happen if you have sold an uncovered call on a stock which is suspended and unborrowable and you get assigned on the call? You have an obligation to deliver the stock but no way of fulfilling it.

What will a retail broker do in this circumstance?

I suspect that you would still have to deliver the stock if the call is exercised during the suspension period. Typically the OCC will release guidance on the specific situation. If something is not specified by the OCC, it will depend on how your broker decides to handle it.

Most likely your broker would borrow the stock to meet the exercise, and put a higher amount of margin required on your short position e. Either the broker will immediately cover the short when the suspension lifts, or allow you the flexibility to close it later.

What happens if I hold a put option on a stock that's suspended from trade? - xelenew.web.fc2.com

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What happens when a stock is in trading halt, and you own in-the-money put options but no stock ? : investing

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If you own put options without owning the stock regardless of whether you are hedging a long position on the stock through calls, or you are just a short seller betting the stock will fall , you can get into a bad situation in the following scenarios: SCENARIO 1 The stock is halted for some reason on the exchange e.

From the point of view of the brokers, there are also issues they have to contend with If they can find the stock to perform the assignment, they are taking a risk with the opening price of the stock once trading resumes.

This is similar to brokers raising the margin requirement for companies with binomial events that are coming up e. The lack of a market presents difficulties to brokers in reallocating already borrowed stock. How Can It Play Out How it can play out the negative news scenario The exchange determines whether the company is seriously working to resolve the issues.

If deemed not sufficient, the exchange gives notice to the company of its failure to meet listing compliance with a notice of de-listing, and a chance to appeal. The company will decide whether or not to appeal, and may issue a press release on their decision. The exchange replies in about a week, and either announces a date for trade resumption or de-listing.

If de-listed from the main exchange, the stock will resume trading on the OTC markets e. OTCBB, Pink Sheets, Grey Sheets. Can There Be a Massive Short Squeeze?

What the Longs Say The short interest is way high relative to the float can even exceed the float. The shorts will need to cover their positions, which will cause a short squeeze.

SEC enforcement of Reg SHO will force the brokers to force cover short stock positions. Massive short squeeze has occurred before in other stocks. Shorts have to pay a high interest cost to maintain the short, such as a hard-to-borrow fee for stocks that are tough to find this is dependent on each brokerage.

Such interest can range from 7. China North East Petroleum NEP was halted from May 26, to Sep 08, inclusive , i. The interest to be paid could kill the shorts during the halt. This will trigger margin calls and pressurise them to dump. Exercise of put options creates a short stock position put holder and an equal long stock position put writer at the same time. Most brokers will not ask clients to immediately cover their short stock position if they meet the margin requirements. Institutions owning the stock will be forced to dump the stock to adhere to their internal rules.

All longs will rush for the exit, no one will be so naive to trust that all longs will cooperate with high limit orders. If there is any spike in the price, longs will rush to sell, effectively ensuring that the price stays down. The same situation happened with RINO and people were selling at the bid when the stock resumed trading on the pink sheets. A more detailed list of analyst coverage can be found here.

Jul , RINO presented at Global Hunter Securities China Conference at St. Regis Hotel, San Francisco. We found that many of its customer relationships do not exist. We show that the Chinese numbers are credible. The management is in flagrant breach of its VIE agreements, which require it to pay income to RINO as opposed to taking it. RINO is not the industry leader it claims to be in the steel sinter FGD system market. Rather, it is an obscure company in a crowded field, and is best known for its failed projects.

Its reported margins are two to three times what they really are. Its technology is sub-par. Nov 29, Post on Yahoo! Message board highlighted that there will be a report out that day on RINO delisting from the NASDAQ. If you are using puts for protection, own the stock duh!

When Trading Stops: What You Need to Know About Halts, Suspensions and Other Interruptions | xelenew.web.fc2.com

Buy put options with expiration some months months out if you expect a significant event around a certain time so that the stock would have resumed trading before your options expire. Buy put options on other stocks that will drop significantly but does not have an impending event that could get it halted if this stock got halted. Note that the prior correlation does not matter. It is a case where when bad things happen, suddenly correlation increases towards 1.

SCENARIO 2 This scenario is a more typical scenario that people would usually think about. Reply to this comment.

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The Power of Options to Slash Your Risk and Make You Money

Sorry, your blog cannot share posts by email. RINO presented at Global Hunter Securities China Conference at St. RINO released Q3 results after U. Global Hunter suspended coverage due to lack of company response to fraud allegations. Volume tapered off quickly after the first 4 days.