To The Moon

@Agxm asked me how to safely short $VinFast Auto(VFS)$ .

I would have to say that looking at valuation and the bubble that is forming. Shorting VFS looks attractive. However, I am concerned that VFS had entered the planet of the apes.

When apes are involved, while swings are expected. Apes dun really care what we think about valuation. There is always an chance that a space craft will launch u to the planet of the apes when u least expect it. 

Conventional shorting entails too much risks as there will still be interest charges involved.

Options can allow for safer shorting either through speculating directly through buying puts with time decay working against us or selling call options With time decay on our side.

That being said, capital outlay for selling naked call is no joke. Let's take selling Oct call option at strike of $125 which is around delta 15, proxy for 15% chance of finishing in the money, as an example.

To get $200 worth of premiums, the margin required is $9474.05, which isn't a small sum. 

Alternatively, we can sell a bear call spread. 

This will reduce the capital required significantly.

At the option strategy tab, choose vertical.

Click on the buy button to change to sell. 

Credit should appear instead of debit when you review the position. 

Do take note that when we sell bearish call spread, we sell the call option that is nearer to the money and buy the call option that's Further away from the money. 

For this particular case, we sell $125 call option and buy $130 call option. This will mean that as long as the stock doesn't go above $125, there will be no risk of assignment. 

when the stock price rallies, the short call $125 option will lose money, whereas the long call $130 option will gain money. Hence, the long call option will serve as protection.

As there is defined risk in this case, the margin required is the gap between the strike price x 100 shares. In this case $5 x 100 - credit recieved. This will be the maximum risk For this position.

Under normal circumstances, the above bear call spread will be a viable and safer way to short VFS.

However, there is yet another issue with VFS.

There is a lack of liquidity in the position.

Selling at $1.20 and buying at -$1.20 for a net credit of $0.00. 

[Spurting] making donation to tiger.

Ok, maybe it's just a spread liquidity issue.

Let's see single call option.

Bid at $1.3 and ask at $2.5.

The spread is significant, again showing that VFS doesn't have option liquidity At far out of money positions I.e. safer positions. 

illiquid option positions post significant risk when choosing to exit early.

Hence, I decided to sit out shorting VFS although it is indeed tempting. 

Also do take note that there's always the risk during expiration day that the stock will shoot up beyond call $125 and when call $130 cannot be used as protection. 

Hence, I will not recommend holding vertical spreads to expiration. Always manage the position before expiry. 

Hope that the above post is helpful. [Cool]