Submitted by FantomJr t3_125pcgo in wallstreetbets
With FRC currently trading at 14.29, the two primary possibilities now that they've denied a buyout are either complete failure or recovery. Recovery would mean significant pop considering a current P/E ratio of 1.5. Failure would mean the stock going to zero. Could you not hedge shares bought at the current price by also buying August or November $1 Puts? The options profit calculator places the theoretical gain on these puts at a stock price of zero to be 400-550%. So if you were to buy one put for every 5 shares you would completely cover losses if the stock were to go to zero. If FRC indicates it will recover over the next 6-9 months, then the upside would likely more than cover the losses from the puts expiring worthless. Is this idea too black and white? What issues do you all see with it?
VisualMod t1_je54vqo wrote
>The main issue with this idea is that it's very risky. If FRC does indeed recover, the puts will likely expire worthless and you'll be left with a large loss. Additionally, if FRC doesn't give any indication of recovery over the next 6-9 months, then there's a good chance the stock could continue to decline, in which case your put options would start to increase in value but you'd still be losing money on your shares. So overall I think this idea is too risky and not worth pursuing.