Is Kodak Stock Being Manipulated?

by admin on August 17, 2009

Well, well, let's go back the post that I made last March about the put and calls options on January 2010 Kodak stock. The stock was hovering around $2.50, and the put was $1.05 and the call was 70 cents. So if you bought Kodak stock then sold puts and calls off the stock, you got about 70% back immediately.

Now let's fast forward to late July. Kodak releases its second quarter results, and it's a stinker. But surprise, surprise, the stock is almost up to $4.50 in less than a month's trading (EDIT: Monday morning it's at $4.00, can't keep up with this thing, it's like a yo-yo), or almost 80%. Gee, maybe the news wasn't so bad... maybe Joe Average Stock Investor is convinced that Kodak is headed for a stunning turnaroud... maybe the tooth fairy dumped 20% market share of consumer inkjet catridges into Kodak's lap.

Or maybe there is another explanation. Let's look at what January 2010 puts are going for: As of August 16th, they were going for 25 cents. Isn't that nice, if you sold puts at $1.07 back in March, you can close out your position at a more than 75% gain. But oh dear, oh dear, those calls you sold back in March for 70 cents are now worth $1.85, well that sucks. But wait.

Remember, the stock is up 80% (Okay, now 65% roughly). So you sell the stock for let's say an average gain of $1.50. You're going to lose 35 cents to close out your short. But not if you are a large institutional trader with enough volume. I mean, let's say you have enough volume to dump enough stock so that you drive the price back down to below $3.00. You've just profited from the sale of the puts, from the sale of the stock, and just might be able to close out your call with little or no loss. Not bad.

Of course, who am I to say that the traders are playing this stock? I'm just a blogger.

Disclaimer: I don't own Kodak stock. Or Kodak puts and calls. Nor to I intend to trade in Kodak securities at any time in the near future.

But if you are more interested in the options scene, you can check this out (if you dare):


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