Aditya Kondawar on LinkedIn: Option History — How Mark Cuban Used Options to Secure His Billion-Dollar… | 10 comments (2024)

Aditya Kondawar

Partner & Vice President - Complete Circle Capital | Author of a National Best Seller

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Option History — How Mark Cuban Used Options to Secure His Billion-Dollar Deal with Yahoo - In 1999, Mark Cuban and his partner Todd Wagner sold Broadcast dot com to Yahoo for $5.7 billion. Cuban received 14.6 million shares of Yahoo. With Yahoo shares trading at $95, he became a billionaire overnight.Cuban wasn’t alone. The internet bubble made many people rich. But after the bubble popped in March 2000, most lost their fortunes. Cuban, on the other hand, actually got to keep his money.Because he had the foresight to execute a shrewd option trade to protect his wealth - Cuban had a feeling that Yahoo stock was funny money. Yet, as part of his deal with Yahoo, he wasn’t permitted to sell his shares immediately. So he entered a massive options trade to protect his $1.4 billion stake.For every 100 shares of Yahoo stock, Cuban bought one put contract (strike $85) and sold one (strike $205). The term of each option was three years.He bought a whopping 146,000 puts and sold 146,000 calls.The cost of the puts exactly offset the premium of the calls. So Cuban’s trade was practicallyfree. At first, it looked like the trade was a costly mistake - Yahoo’s share price shot up to $237 by January 2000 – much higher than the sale price of his $205 call options.Then the internet bubble burst. And two years later, Yahoo shares had sunk to $13. If Cuban hadn’t executed his options trade, he would have lost more than 85% of his wealth. Instead, he managed to hold on to almost all of his money!What a crazy story right?

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Vibu Venkatasubramanian

CFP®️Certified Financial Planner|Top Leadership Voice|4X Community Top Voice|Personal Finance|Wealth Advisor|investment Specialist. Wealth Management Personalised.Tailor made Wealth solutions.Consistent returns over 6Y

3mo

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The resolve to stay calm when price shot to 237$ is the game changer. The amalgamation of Industry specific insights with Behavioural finance brings success. Behavioural is often overlooked.

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Jainam Mehta

Independent Options Trader and Delta Hedger | Ex Investment Banker

3mo

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It shows derivatives can make money and many cases can protect money

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Ali Noorani

🎓Finance Student | Aiming to pursue a career in Investment Banking

2mo

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Hi Aditya, why did Cuban choose to buy puts at 85$, he could have bought it at a higher price and why did he keep the spread between selling calls and buying puts so high? I don't have much knowledge, please help me out.

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Pulkit Jhawar

CA - FP&A and Bizfin | Flipkart | Cars24

3mo

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Great story and very well articulated.

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Vigil Andrades

Equity Research | Occasional Trader | Long-term Investor | CFA Level 2 candidate

3mo

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Neelanchal Pasi

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Ali Noorani

🎓Finance Student | Aiming to pursue a career in Investment Banking

2mo

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very well drafted Aditya

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Pavan CH

CA Finalist || PwC India || Article Assistant|| Statutory Audit || Finance Enthusiast

3mo

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That was indeed a genius move by Cuban 🙌

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Komal Sharma

CA Finalist (Group 2 cleared), Former Industrial Trainee at Bharat Petroleum Corporation Limited

3mo

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Well planned and executed strategy by Mark Cuban 👍

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