Is Joy Global about to tank really bad?
That question is very near and dear to my heart, since I've sold several puts on them recently, and if it tanks 15% or more in the next 15 days or so, I'm sunk. I thought the premiums were irresistible on the Jun 10 44 puts: more than 2% of strike for options about 13% otm, and that expire in... 17 days! That's a hell of a lot of implied volatility or whatever. If it sheds, say, 10% of its market cap, and it takes 18 long days to do it, I've pocketed the whole premium. Same if it stays level or skyrockets. For it to be unprofitable at the time of expiration, the stock has to be about 13% lower then.
A second problem arises, however, if it drops most of the 13% in less than a week. Then the options are going to show a paper loss, even if it never makes it down the rest of the 13%. I might be able to average down on the position, but my broker might increase the margin requirement for the puts because of the volatility: I might even be subject to liquidation and defeat without the 13% drop ever materializing.
Still, I thought it was a fair risk. I'm in.