Disney Options Strategy

J

Johnny4

Back on Feb. 21st. I set up an iron butterfly using disney.

Buy 2 Put Apr. 21st. 115 @5.55
Sell 2 Put Apr. 21st. 125 @14.76
Sell 2 Call Apr. 21st. 125 @0.07
Buy 2 Call Apr. 21st. 135 @0.02

The "Sell 2 Put Apr. 21st. 125" was automatically assigned Saturday morning, resulting in the purchase of 200 shares @110.02.

Any advice on different ways to handle this particular situation going forward? Thanks in advance!
 
I'm not really an options guy, but I would suggest you unwind your position - i.e. sell the shares (~112) and the long puts (~3.25), and repurchase the call spreads (~-0.06).

Total profit ~14.50, well above your expected max profit of ~9.26.

Curious to see if there are 'strategies' out there to beat this...
 
Used the options optimizer on etrade and entered a 112 taget at that time and this was one of the scenarios it gave me.
 
Congrats. You instantly pocketed the remaining extrinsic premium on the puts. It can sometimes happen for ITM options prior to expiration. Your delta exposure should still be roughly the same.

You can sell those shares and sell the assigned puts again to re-establish your (more) short vol exposure, if you desire to maintain the same exposure.

Though Disney hitting 125 in so few days is not very likely. Who knows, we could get a Trump rally.
 
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xandman said:
Congrats. You instantly pocketed the remaining extrinsic premium on the puts. It can sometimes happen for ITM options prior to expiration. Your delta exposure should still be roughly the same.

You can sell those shares and sell the assigned puts again to re-establish your (more) short vol exposure, if you desire to maintain the same exposure.

Though Disney hitting 125 in so few days is not very likely. Who knows, we could get a Trump rally.
More...

There's no extrinsic premium left in those... so no congrats there.
OP shouldn't have entered in that trade in the first place...

If the stock was trading at 110 at the time of trade... with a target of 112... there's no point in doing that trade at all... At expiry you would only start making money above 115... actually 115.83 (excl trans costs).

Unless OP was hoping gamma would kick in... but not at 112 target.

So that's still the same... this trade will start making money back above 115.

So my advice, keep as is untill expiry... because you are already in a losing position but you can't really lose a lot more... only 3 or 4 cents from this level. Maybe start offering some stock above 117 to lock in profit.

Don't sell those ITM puts again, as there's only intrinsic value left and you will definitely have to sell below intrinsic and give money away to market makers.
 
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Johnny4 said:
Used the options optimizer on etrade and entered a 112 taget at that time and this was one of the scenarios it gave me.
More...

Where did you enter a 112 target and got this trade as a good idea?

EDIT. Okay on Etrade... maybe don't do that anymore ;)... This trade was definitely a good idea... for Etrade, not you
 
To clarify this trade... you've basically traded 2 call spreads.
Bought the 115-125 call spread at 0.78
Sold the 125-135 call spread at 0.05
So basically a 115-125-135 call fly. Best scenario is expiry on 125.
Worst case is expiry outside the fly... <115 or >135... since you would lose the premium of 0.73.

So when the 115 call is trading at 0.73 you would break even (excl fees). Another way to kinda ofset this position is trade/sell the 115 call. When it's at 1.00, you make 27 cents. When it's at 1.50, you make 0.77 etcetc... And remember to buy back the 125-135 call spread. Keep the long 115 put and long stocks.

And I assume your costs were nice and high? Another what... 25 cents?

As I said... only winner here is Etrade on the fees.

That 125-135 call spread on it's own, selling at 5 cents... costs alone would be at least double that... so you would never ever make money on that...
 
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JackRab said:
There's no extrinsic premium left in those... so no congrats there.
OP shouldn't have entered in that trade in the first place...

If the stock was trading at 110 at the time of trade... with a target of 112... there's no point in doing that trade at all... At expiry you would only start making money above 115... actually 115.83 (excl trans costs).

Unless OP was hoping gamma would kick in... but not at 112 target.

So that's still the same... this trade will start making money back above 115.

So my advice, keep as is untill expiry... because you are already in a losing position but you can't really lose a lot more... only 3 or 4 cents from this level. Maybe start offering some stock above 117 to lock in profit.

Don't sell those ITM puts again, as there's only intrinsic value left and you will definitely have to sell below intrinsic and give money away to market makers.
More...


I'm struggling to follow from the point where you said OP is in a losing position:

OP has received 9.26 in premium (per 1 contract), and is currently holds the following:
1) Long 2 put 115 (bid ~2.94y)
2) Long 200 shares of DIS at 110.02 (bid 112.38)
3) Short 2 calls 125 (offer ~0.03y)
4) Long 2 calls 135 (bid ~0.01 if..)

So unwinding his position would result in ~5.28 (per 100 shares / 1 contract) which, on top of the initial premium received of 9.26 results in total cash proceeds of 14.54.

How is this a losing position?
 
Thanks for all the insight! I ended up selling off the 200 shares for a nice profit and entered back into the same position. So far its a win, we will see what happens going forward!
 
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