Earnings Play - Key Metrics - nyse:ACN

[kmiklas]

@JackRab Thanks for your insights into ACN. I'm learning a ton about options; taking apart, piece-by-piece, everything that you wrote. It's taking me a little longer than usual because of the holidays, but I will get through it!

Most concerning is how I mixed up the orders on the strangle. You said:

...and sell Jan-06'17 114/132 strangle at about 1.10...

I got the date and strikes right, but it seems that I crossed the call and the put. I sold the call at 114, and sold the put at 132, and ended up with a short strangle, at a MUCH higher price.

Specifically, what I did was this:

What I should have done was this:

As you say above, I end up with the same curve, but at a much cheaper price.

Is this correct?

Thanks again.

Sincerely,
Keith :^)

 

[JackRab]

@JackRab Thanks for your insights into ACN.
As you say above, I end up with the same curve, but at a much cheaper price.

Is this correct?

Exactly...

You sold the 114 call and 132 put at 9.80 and 8.20 (or vice versa)... so the ITM strangle, (which is actually called the GUTS) you sold for 18 bucks... Which is the intrinsic value... and that intrinsic value will always remain 18, since either one or the other or both will be ITM total 18.

So you can't exactly win on that. You should've sold the OTM's for a total of about $1 at the time... put/call-parity makes the value of the GUTS $19...
So you've sold it $1 below fair value, which would be very nice to the MM's... but not so much for your wallet .