FAS/FAZ Options

D

dearinfinity

I am thinking about buying calls for MAY FAS 9 (lmt .70)
&&
MAY FAZ 15 (lmt 1.70)

At a volatile time like this where the next couple of days should be pretty rough, is there any potential downside to this strategy other than my max loss of 2.40 per contract? Even then--are my losses not technically limited even then--supposing high volatility? Will not one option essentially expire worthless (or I could sell when the trend becomes evident), while the other will most likely be in the money?

Scenario: this ends up being a minor dip in an overall bull market. FAS returns to approximately 10.00. If this happened with volatility, the option could be worth anywhere from 1.70-2.00 (rough guesstimate.) FAZ dips to 0 or so. The reverse would be the same as well.

Is this an effective way to bank off the volatility of this market while minimizing losses? Or is there something I am not seeing here.

Thanks
 
Quote from dearinfinity:

I am thinking about buying calls for MAY FAS 9 (lmt .70)
&&
MAY FAZ 15 (lmt 1.70)

At a volatile time like this where the next couple of days should be pretty rough, is there any potential downside to this strategy other than my max loss of 2.40 per contract? Even then--are my losses not technically limited even then--supposing high volatility? Will not one option essentially expire worthless (or I could sell when the trend becomes evident), while the other will most likely be in the money?

Scenario: this ends up being a minor dip in an overall bull market. FAS returns to approximately 10.00. If this happened with volatility, the option could be worth anywhere from 1.70-2.00 (rough guesstimate.) FAZ dips to 0 or so. The reverse would be the same as well.

Is this an effective way to bank off the volatility of this market while minimizing losses? Or is there something I am not seeing here.

Thanks
More...

You are long vega, short theta, and gamma gets a little tricky due to the pair behavior of the 2, need to compare them for the diff.

faz at 11.63, fas at 6.56. Max loss is $2.4+commission, at most only one of the two will be winners. Looking at expiration, needs a move of ~50+% to be profitable. Usually this is insanity, but given the nature of the triple etf and the expected vol in the next few weeks, who knows. You might very well have a big winner.

My play is slightly different, i am naked short (cash covered) faz may 9P at $1.79, if fas drops to 5.5, i will short the fas 5P as well. At expiration, if either is itm and assigned, i will take the position then do a covered call on it.

My basis is a play on the vol and the fact those triple etf is a daily percent move, so as the price gets lower and lower, the actual $ amount moves smaller and smaller, and either of them are single digit to begin with. I will never naked short the other side though, it will be suicide.

Good times.
 
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