Abstract: Describe the reasons of trading short put stock options of Xiaomi, and share the advantages and disadvantages of this strategy.
Today I am sharing with you about the transaction I made on October 4, 2021, the detail is as follows:
Short put option
- Xiaomi Corp (HK stock code: 1810)
- Quantity: 1000 units of stock option
- Expiration: 2021-10-28
- Strike price: HK$19
- Stock price at transaction: HK$20.65
- Option price: HK$0.35
- Commission fee: HK$19
- Premium received: HK$331
The reason why I did short put of Xiaomi
Xiaomi today hit a new low for nearly half a year. The unfavorable news includes the market expectation that the market share of Xiaomi mobile phones will fall, and with Xiaomi’s active expansion in China, the gross profit margin will be further narrowed; and the biggest unfavorable factor is about Xiaomi’s car manufacturing. It is said that Xiaomi will manufacture its EV cars using its own resources, rather than relying on outsourcing like Apple. The cost of self-made cars is of course higher. When capital expenditures are expected to remain high, operational risks will rise accordingly. When the market sees this kind of uncertainty, you can understand why Xiaomi’s stock price continues to fall. But as an investor, what you look at should be the company’s long-term development potential. What is more, I strongly believe in the personality and technical leadership of the company’s CEO Lei Jun, so I believe in Xiaomi’s long-term development.
Taking into account the option premium received, if the option is eventually exercised, the cost price is HK$18.65. I have thought that if it really falls to this price level, I am willing to increase the position again, which is about 9-10% further drop from the current price. Let’s see if Xiaomi’s share price will fall to my strike price again at the end of this month.
Comments and sharing
I am going to finish it here. 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.