Quote from novel20:
Riskarb, why would someone betting so big and in an obvious way? Wouldn't there be other forces trying to trade against this bet?
And why wouldn't he do it in batches, so it would not be so obvious? May be he is doing something besides this butterfly??
They put up very little capital[$500k] to play the position. It's not large in terms of debit exposure and has a large expectancy based upon the current share price. It earns >$5mm at expiration with GM trading here at $20; a 10-bagger. The fly doesn't bleed deltas on the upside due to the limited gammas as a function of the long hold. Also, it begins to earn as it approaches neutrality. Limited upside risk, homerun potential.
I imagine it's a standalone position as butterfles are terrible hedges. It's a poor hedge into a liquidation as the common would blow through 15 and they would accumulate long deltas.
