Abstract: Explain the reasons for short put Didi options and share the advantages and disadvantages of this strategy.
Transaction detail
What I want to share with you today is the transaction I made on July 23. The details are as follows:
Short put option
- Didi Global Inc (US stock code: DIDI)
- 400 option units
- Expiration: 2021-08-20
- Strike price: US$6
- The underlying stock price at the time of trading: US$8.51
- Option value: US$0.3
- Commission fee: US$2.84
- Total premium collected: US$117.16
Source: https://seekingalpha.com/symbol/DIDI/chart
A quick review of short put option strategy
First of all, if you are not sure what a short put is, you can check my previous article “Basic option strategies – long call, short call, long put and short put“, you can also view the actual operations of the short put that I have done before in “My transaction Record“.
To put it simply, short put is an operation method to look up the underlying stock. When the underlying stock price falls below the strike price at expiration, the premium will be your net profit. But I said in the previous articles that you can’t just think about making a premium when doing short puts. You should always think about the worst-case scenario and be prepared for both directions.
Why did I short put Didi?
After I opened short put of Didi the previous day, Didi’s share price plunged 16.62% again to US$8.51 today. The market was in a stage of extreme panic towards Chinese stocks. This was partly driven by the sharp decline in Chinese education stocks. New Oriental Education (US stock code: EDU) fell by 55.94%, TAL Education (US stock code: TAL) fell by 58.24%, and Gaotu Techedu (US stock code: GOTU) fell by 57.05%. In contrast, Didi’s drop was really small!
Image source: https://seekingalpha.com/symbol/EDU/chart
Image source: https://seekingalpha.com/symbol/TAL/chart
Image source: https://seekingalpha.com/symbol/GOTU/chart
As for my views on Didi, I basically explained it in detail in the previous article “My trading record (2021-07-22, short put Didi)“. There is nothing to add today. If you are interested, you can have a look here. Based on my strike price of US$6 and the option premium received, if the option is finally exercised, the cost price will be US$5.7 per share, and the return on premium received is about 5%. The cost price will then have to drop more than 33% of the current price, or 57% lower than the IPO price in total. After I saw that Chinese education stocks can fall by nearly 60% in one day, I really believe nothing is impossible.
Also the old saying, the most important thing is to control your bet and be prepared to take the manageable risks that you can afford. I think now is definitely the time you should be greedy while others are fearful. And, opportunities are always created by falling in stock market. If you have done a good job of researching the stocks of companies you are interested in, maybe now is the time to decisively check for bargains.
Comments and sharing
If you have any questions, please feel free to leave a message or comment below, I will reply you. Or if you find anything incorrect in the article, please let me know and learn from you. If you find it interesting or it may help you in any sense, please share with other people.
