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I love Matt, but he actually made a (minor) mistake this time. He wrote in footnote 8: Once the options reached the minimum possible price, there's no reason t

I love Matt, but he actually made a (minor) mistake this time. He wrote in footnote 8: Once the options reached the minimum possible price, there's no reason to keep a short position open -- you can only lose money. So of course Omega should have bought in the position, regardless of whether it had good or bad or no news. That's wrong. The options had an actual price. Granted, it was a low price, Cooperman bought them back at an average of $0.07, having sold for $1.32. But it was still a bid. The majority of options actually expire worthless. I.e. the "minimum possible price" is actually $0.00. This is often reported as "no bid" well before expiration. So it's wrong to say that Cooperman "can only lose money". He could have actually made an extra $0.07 per option had he not bought them back and potentially allowed them to expire worthless.

jonknee 10y ago
> That's wrong. The options had an actual price. Granted, it was a low price, Cooperman bought them back at an average of $0.07, having sold for $1.32. He's not wrong, he was pointing out that almost all the potential profit had been realized, but there was still a way to lose it all. With numbers: they already made 95% of possible profit, but were able to lose 100%. It makes sense to close a position like that out and is indeed commonplace. Most shops don't like that type of negative asymmetric risk. However, what they didn't do is roll them forward to keep the short position, that's also a common technique.
- PhantomGremlin 10y ago
  He's not wrong Matt certainly was wrong when he said: you can only lose money. I pointed out that Cooperman could have made a potential additional $0.07 if the options expired, and you're agreeing with that. I agree with you that it usually makes sense to close out or roll an asymmetric position. BUT, and this is an important BUT, holding a position to expiration is far from rare. Here are some statistics (but I can't vouch for their accuracy)[1]: 10% of options are exercised 55% to 60% of options positions are closed out (bought back) 30% to 35% expire worthless Option expiration shouldn't be glossed over. That final case occurs one-third of the time. [1] https://www.stockoptionschannel.com/slideshows/seven-myths/most-options-expire-worthless/ https://www.stockoptionschannel.com/slideshows/seven-myths/m...
  - ikeboy 10y ago
    But what percent of $.05 options expire?

jonknee 10y ago

> That's wrong. The options had an actual price. Granted, it was a low price, Cooperman bought them back at an average of $0.07, having sold for $1.32. He's not wrong, he was pointing out that almost all the potential profit had been realized, but there was still a way to lose it all. With numbers: they already made 95% of possible profit, but were able to lose 100%. It makes sense to close a position like that out and is indeed commonplace. Most shops don't like that type of negative asymmetric risk. However, what they didn't do is roll them forward to keep the short position, that's also a common technique.

PhantomGremlin 10y ago
He's not wrong Matt certainly was wrong when he said: you can only lose money. I pointed out that Cooperman could have made a potential additional $0.07 if the options expired, and you're agreeing with that. I agree with you that it usually makes sense to close out or roll an asymmetric position. BUT, and this is an important BUT, holding a position to expiration is far from rare. Here are some statistics (but I can't vouch for their accuracy)[1]: 10% of options are exercised 55% to 60% of options positions are closed out (bought back) 30% to 35% expire worthless Option expiration shouldn't be glossed over. That final case occurs one-third of the time. [1] https://www.stockoptionschannel.com/slideshows/seven-myths/most-options-expire-worthless/ https://www.stockoptionschannel.com/slideshows/seven-myths/m...
- ikeboy 10y ago
  But what percent of $.05 options expire?