For the year 2013, AMD suffers a net loss of 83M or loss per share of $0.11. Refer to NYSE Press Release for details.
On 22 Jan 2014, AMD gap down with huge volume, after announcing a worse-than-expected financial results. Oh, this is the same as in Malaysia too. Gap down after a bad financial result, as what happended to ZHULIAN recently.
|AMD Put Option @ $4, Jan wk 4 2014|
Put options has opposite trend against the mother share. As AMD price goes down, put options will have a higher value, and vice versa, as shown in the above figure.
24 Jan 2014 is the expiration day for this option. Both NYSE and NASDAQ suffered losses of about 2%, quite a huge loss in single day. AMD closed at $3.47, well below the strike price of $4. Since the price is below the strike price, put options buyer will definitely exercise his/her rights to sell
the share @ $4 to me. (e.g. imagine you hold an insurance policy (options buyer), that accident happens to you some day (touch wood), for sure you will claim from the insurance company (options seller))
Last row shows my sell transaction, that the premium I gained.
2nd row shows that AMD share was assigned to me @ $4/share. I have to buy it at this price. Since the mother share is trading @ $3.47, this means that I incur a loss of 0.53*1000 = 530 IMMEDIATELY.
1st row is to close my options position.
This means that my net loss in this trade is: 190-530 = -$340
If, say, I do not want to hold AMD share. I can opt to buy the put options to close my position. The put options closed at $ 0.56 on 24 Jan 2016. This means that I have to pay 0.56*1000 = 560 to buy back the put options.
In this case, my net loss is 190 - 560 = -$370
Is almost LPPL (i.e. almost the same). Of course, seeing that AMD plunged few days before the expiry date, I could have bought the put options to close my positions way earlier, to limit my loss. Another choice is to hold AMD until it recovers. But the catch for this is that my money will be locked in the share. Whatever decisions to make is dependent heavily on the capital, and this must be determined before executing the transaction.