Johnny4- the profit you got out of the long stock was happenstance- had nothing to do with options trading. I would reinforce what other posters here have said. Do not put on anything deep ITM because of assignment risk not to mention fees that multi leg spreads generate. most edges in option trading can't be found from "off-the shelf"systems offered by brokers. Most of them are IV scanners which highlight IV differences where, once bid/ask spread is factored in on top of commissions negate any edges. Be a skeptic.. consider the source. These scanners would love to recommend 12 legged spreads if they could to rack up their commish.
Disney Options Strategy
- Thread starter Johnny4
- Start date
@H2O
OP didn't get those shares at 110.02... but at 125 and received the full put premium of 14.76 so he effectively paid 110.24.
With Disney stock at 112.38:
He makes 2.14 on that 125 put in combo with stocks.
He paid 5.55 for the 115 put, which is 2.62 intrinsic, plus something like 60 cents premium = 3.22.... so his current loss on that is 2.33.
The 125-135 call spread is zero now... so makes 5 cents on that (although incl fees that would evaporate).
So all up... 2.14-2.33+0.05 = loss of 14 cents.
(EDIT. PS. that 60 cents premium in 115 put is at current stock level of about 113.. so it was actually about 30 cents at 112.38?.. making the loss at time of trade 30 cents bigger...)
Take into account all the fees and he's down 35 cents....
By long, I mean delta's. If you're short a 115-125 putspread, with the 115 put delta -70 and 125 put delta -95... that means he's long 25 deltas. So it's a bullish position. The 125-135 calls spread has a slight negative delta.. 4 or so.. so still he's long.
With the assignment in the 125 put, which was done because there was hardly any time premium left and the interest in holding that put untill expiry outweighs the little time premium left. So the holder exercised it.... and OP was assigned.
The long delta's in that put were just swapped for the long delta's of the delivered stock. So the position essentially was still the same.
The 115-125 short put spread works exactly the same as the long 115-125 call spread. They have the same delta/gamma/vega/time premium. And the same payoff. So it's easier to look at this position by looking at OTM's... as long 115-125 call spread and short 125-135 call spread = 115-125-135 call butterfly.
OP didn't get those shares at 110.02... but at 125 and received the full put premium of 14.76 so he effectively paid 110.24.
With Disney stock at 112.38:
He makes 2.14 on that 125 put in combo with stocks.
He paid 5.55 for the 115 put, which is 2.62 intrinsic, plus something like 60 cents premium = 3.22.... so his current loss on that is 2.33.
The 125-135 call spread is zero now... so makes 5 cents on that (although incl fees that would evaporate).
So all up... 2.14-2.33+0.05 = loss of 14 cents.
(EDIT. PS. that 60 cents premium in 115 put is at current stock level of about 113.. so it was actually about 30 cents at 112.38?.. making the loss at time of trade 30 cents bigger...)
Take into account all the fees and he's down 35 cents....
By long, I mean delta's. If you're short a 115-125 putspread, with the 115 put delta -70 and 125 put delta -95... that means he's long 25 deltas. So it's a bullish position. The 125-135 calls spread has a slight negative delta.. 4 or so.. so still he's long.
With the assignment in the 125 put, which was done because there was hardly any time premium left and the interest in holding that put untill expiry outweighs the little time premium left. So the holder exercised it.... and OP was assigned.
The long delta's in that put were just swapped for the long delta's of the delivered stock. So the position essentially was still the same.
The 115-125 short put spread works exactly the same as the long 115-125 call spread. They have the same delta/gamma/vega/time premium. And the same payoff. So it's easier to look at this position by looking at OTM's... as long 115-125 call spread and short 125-135 call spread = 115-125-135 call butterfly.
Last edited:
What level did you sell the stock at and what level did you sell the 125 put at if I may ask? And were they done at the same time?
You're looking at the wrong numbers. Firstly he's not long DIS at 110.02... I'd rather say 110.24 like I explained in my previous post... but okay... let's move with 110.02.
At that level, the 125 put was 14.98 (intrinsic value, no time value left). That didn't just disappear... that 14.98 has to come from somewhere... in this case, the OP effectively had to pay that back. So what really happens on exercise/assignment, is that he got delivered the stock for 125... because the put holder has the right to 'put' the stock away for the strike price (=125)... but the holder loses the full put value. And the opposite side is in this case the OP. He paid 125 for the stock delivery, and gained the full premium.... effectively paying 110.02.
What you do, is basically taking a double + on that put assignment by saying on top of getting the stock for 110.02 he got the full premium received... Which is not the case, since money doesn't just appear or evaporate into thin air.
So
1) Long 2 put 115 (bid ~2.94y)
> correct... this is a loss of 5.55-2.94 = 2.61...
2) Long 200 shares of DIS at 110.02 (bid 112.38)
> technically correct, but you pay 14.98 for the 125 put so loss on put 14.76-14.98 = -0.22
> gain on stock = 112.38-110.02 = 2.36
> total gain = 2.36-0.22 = 2.14
3) Short 2 calls 125 (offer ~0.03y)
4) Long 2 calls 135 (bid ~0.01 if..)
> total gain on call spread = 0.05-0.02 = 0.03
> total on position: 2.14 (125 put/stock) -2.61 (115 put) + 0.03 (call spread) = -0.44
This 44 cents loss equals my assessment in prev post, which was 14 cents but I used a different premium for the 115 put, which was 30 cents to high.
I stand corrected - I just went with the numbers provided by OP without actually thinking it through... Of course he would be assigned at 125, and not at 110.xx so I indeed counted the premium received double - my bad!
