Chapter 250: Out-of-the-Money Put Options

After receiving Chen Mo's order, Henry and Pete immediately sprang into action, making call after call to the exchange, selling off Chen Mo's contracts.

Chen Mo remained seated in the trading room, staring at the numbers on the Bloomberg terminal.

An hour later, Chen Mo said, "Henry, come here for a moment."

"Boss, any instructions?" Henry, who had just finished a call, rushed over.

"Help me check the price of out-of-the-money put options on IBM stock."

"Please wait a moment."

Henry immediately ran to the phone and placed a call; less than a minute later he hung up and ran back to Chen Mo's side.

"Boss, IBM's current stock price is $120; the premium for a single November-expiry put option with a strike price of $115 is only $3."

Hearing Henry's quote, a flicker of joy crossed Chen Mo's eyes: "Good, buy ten million contracts for me."

Upon hearing Chen Mo's order, Henry was shaken and pressed: "Boss, IBM's stock is extremely stable; unless a market crash occurs, its out-of-the-money put options are worthless, basically just scrap paper."

"You're doing this......"

"Shut up!" Chen Mo barked, cutting Henry off while glaring at him fiercely, "You just need to follow my orders; don't say anything else."

"Okay... okay, Boss."

Under Chen Mo's gaze, Henry, unable to contain the turmoil inside, immediately ran to make a call.

Although Chen Mo said nothing explicitly, the implication of his order was already enough to make Henry's scalp tingle.

A put option is also a contract that gives the holder the right to sell the underlying asset at the agreed price on or before the expiration date.

Its greatest appeal lies in limited loss but enormous profit potential.

The so-called IBM November-expiry $115 out-of-the-money put option means the holder can sell one share of IBM stock at $115 in November.

IBM's stock price is now $120 per share, and the price is very stable.

No one would sell a $120 share for $115, so it's currently worthless.

But when IBM's stock falls below $115, it becomes very valuable.

Such out-of-the-money put options are akin to a lottery, betting that the stock will plummet in the short term.

And for a stock like IBM, which is normally stable, a sharp drop can only happen in one scenario: a market crash.

In fact, in Chen Mo's memory, IBM's stock will plunge to $90 after a market crash.

At that point, each put option would allow selling a $90 share for $115, giving it a value of at least $25.

Including time value, it could be even higher.

And Chen Mo's cost is only $3.

Barring surprises, Chen Mo's thirty million will turn into two hundred fifty million, or even more.

Henry is an experienced trader.

If Chen Mo's shorting of stock-index futures isn't clear enough, then buying ten million IBM out-of-the-money put options means something that goes without saying.

Chen Mo is certain that the US stock market will crash, and soon.

Although Henry still doesn't know why Chen Mo thinks so, the mere possibility of a crash is already enough to frighten him.

Every time a market crash occurs, it means that large numbers of ordinary investors in Meiliguo lose everything and end up on the streets.

The market crash caused by the oil crisis in 1973‑74 had just passed a dozen years ago; the horror of it left a deep impression on Henry.

He now urgently wants to tell all his friends and family this news so they can prepare early.

But he has now lost all contact with them.

The phones in the trading room can only call the exchange runners, and Chen Mo's people are watching nearby.

He dare not try to send information outward.

As he is now, he can do nothing but follow Chen Mo's orders.

Chen Mo knows Henry might have guessed something, but it doesn't affect his plan.

Having chosen a trader to assist him with the trades, he had prepared himself for being discovered.

Otherwise, why would he have Henry and Pete cut ties with family and friends beforehand, if not to guard against them?

Actually, even if they spread the word, Chen Mo wouldn't care.

Given the demeanor of those Wall Street capitalists, if they knew a crash might happen, their first reaction would certainly not be to rescue the market but to find a way to pull out early, possibly even to make a big profit in reverse.

By then, the crash might become even more severe.

"Jimmy, you bring a few people to stay here and keep watch; I'm taking your two sisters-in-law back first."

Chen Mo's orders were just those two; staying here would only mean staring at the Bloomberg terminal with nothing to do.

These two operations used Chen Mo's 330 million dollars, leaving ten million dollars in the account as a reserve.

As long as Henry and Pete carry out Chen Mo's two orders properly, there's nothing else to do.

Chen Mo only needs to wait for next Monday's arrival; that will be the crucial moment.

"Okay, Mo Ge, I'll watch closely," Jimmy said without turning, standing beside Henry and Pete, observing how they quickly dispersed and sold the contracts.

These are all experience, things Jimmy couldn't learn elsewhere.

Chen Mo paid no heed to Jimmy's behavior, smiled, and left with Gangsheng QiuDi and Ahua.

Shortly after Chen Mo left, Merrill Lynch held a senior meeting.

The core of the meeting's discussion was precisely Chen Mo's this operation.

Many people with over three hundred million dollars enter the stock market in Meiliguo, and Merrill Lynch's clientele includes plenty with funds exceeding three hundred million.

But using three hundred million dollars to leverage twenty‑fold, going all‑in short on index futures without wanting to stir the market, Chen Mo is the only one.

After handling Chen Mo's business, Yuehan Feishi immediately reported to Merrill Lynch's senior management.

As one of Wall Street's largest brokerages, Merrill Lynch's senior staff are highly vigilant.

Upon learning of Chen Mo's operation, their first reaction was not "He's wrong," but "Does he know something we don't?"

Thus, a high-level discussion meeting targeting Chen Mo's operation was convened.

At the meeting, Merrill Lynch's senior management launched an internal emergency study, re-examining Meiliguo's macroeconomic data, market technical structure, and political risks.

Under the concentrated discussion of a group of industry top talents, they ultimately reached the conclusion: the stock market is indeed overvalued, interest rate upward pressure is too great, and the US stock market faces the risk of a rapid decline.

However, the risks are currently within controllable limits.

Chen Mo's operation may merely be a bold gamble made amid overconfidence.