goog mar 380 puts stuck?

[Paccc]

Quote from riskarb:

You're at fault for not moving stock once it was obvious that there was a problem. Nobody with any experience would route an option market order in that scenario. The march 380 $vegas weren't an issue with the stock <350. Your deltas overwhelmed your vegas by an order of mag, and your comments about attempting to earn on the vol are absurd. Your primary concern is your deltas.

Riskarb,

Out of curiosity, I am interested as to how would you have handled this situation. Luckily this has never happened to me, and while thinking to myself what I would have done in the same situation, I realized I did not know. If you went delta neutral by buying stock, wouldn't you have to constantly make adjustments when it moved up or down? Also, what if your LMT order really did get executed but just didn't show it on your screen, wouldn't the hedging generate a loss if the stock continued to drop (since you were under the assumption you still held your puts)? Thanks.

-- Paccc

 

[riskarb]

Quote from Paccc:

Riskarb,

Out of curiosity, I am interested as to how would you have handled this situation. Luckily this has never happened to me, and while thinking to myself what I would have done in the same situation, I realized I did not know. If you went delta neutral by buying stock, wouldn't you have to constantly make adjustments when it moved up or down? Also, what if your LMT order really did get executed but just didn't show it on your screen, wouldn't the hedging generate a loss if the stock continued to drop (since you were under the assumption you still held your puts)? Thanks.

-- Paccc

90 shares long would've locked the gains on the put with the possibility of nonlinear gains if the stock rallied[which it did]. The option deltas don't decrease in a linear fashion; they would decrease, but decelerate as the stock rallied and maintain 50 deltas if/when the stock reached the strike; the put would retain much of it's value and lose only 40d in the process. The possibility of synthetic deep ITM straddle gains in a rally -- in a decline, the gains from put deltas will match the loss on stock hedge. The only disadvantage is the loss of the synthetic 390c premium[extrinsic put value], but that is acceptable considering the potential nonlinear upside gains from the combination.

I have no comment regarding a LMT fill no showing on my screen. I will simply add that in most cases it's advantageous to lock deltas with shares in hopes of a reversion to mean, regardless of an[a] [dis]orderly market in the option. Your only risk is the extrinsic val on the put, which is insignificant and you're already sitting on a lottery win. The potential for additional gains must be considered.

Position summary: Long 390p + 90 shares --- zero downside risk and itm call synth straddle gains in a rally. Potential loss = 390c value at time of hedge[390p extrinsic value].

The move to the strike would've resulted in an additional $10/share in gains.