How to realize full profit from bull call spread

justrading · Mar 8, 2014

Quote from post #1

I had a call condor on nflx. 440/445 465/470
at the open NFLX was around 449.

FXforex · Mar 8, 2014

drownpruf said:
You are an idiot. He mentioned the iron; in which the expiration risk would have been in the 445P of the bull put apread.

The OP is mixing up terms. When he mentioned an "iron" are you and him on the same page? I don't think so.

That 445 Put just came out of thin air.

voltrader1 · Mar 8, 2014

FXforex said:
The OP is mixing up terms. When he mentioned an "iron" are you and him on the same page? I don't think so.

That 445 Put just came out of thin air.

no atticus mentioned the put because if i had an iron condor instead of a call condor
it would be
440/445 put. You are confused.

voltrader1 · Mar 8, 2014

drownpruf said:
Nobody is going to give you strike-value prior to expiration. All MMers engage in discount "arbitrage" into expiration. This facilitation comes at a cost, in this case, 0.45. The experience will help to mitigate your EV going forward.

I understand that. I didnt expect to sell it for the full 5.00 but man that was a wide spread. That really was free money to the MM.

I guess i need to get into market making.

And thanks for the inputs atticus. Although sometimes you are hard to understand ive learned alot trying to decipher your jargon. much appreciated.

Just one last question, What would you have done in this situation?

FXforex · Mar 8, 2014

voltrader1 said:
no atticus mentioned the put because if i had an iron condor instead of a call condor
it would be
440/445 put. You are confused.

Oh I see. "if" you had an iron condor, that's where the 445 put came from.

drownpruf · Mar 8, 2014

voltrader1 said:
I understand that. I didnt expect to sell it for the full 5.00 but man that was a wide spread. That really was free money to the MM.

I guess i need to get into market making.

And thanks for the inputs atticus. Although sometimes you are hard to understand ive learned alot trying to decipher your jargon. much appreciated.

Just one last question, What would you have done in this situation?

The digital was ~90/100 at exp so I would've let it go into expiry, but it wasn't a slam dunk decision.

You're welcome.

justrading · Mar 9, 2014

voltrader1 said:
I understand that. I didnt expect to sell it for the full 5.00 but man that was a wide spread. That really was free money to the MM.

I guess i need to get into market making.

And thanks for the inputs atticus. Although sometimes you are hard to understand ive learned alot trying to decipher your jargon. much appreciated.

Just one last question, What would you have done in this situation?

Nice to know I'm not the only one who thinks wistfully of the Atticus nick.

Some wonderful advice proffered under that name.

SIUYA · Mar 9, 2014

drownpruf said:
wtf, the cost (0.45) is the risk charged by the mkt. This was not a case of closing ITM by a few cents over the short-strike. My God, the only thing you ppl are good at is beating a dead horse.

well thank you mr bleeding obvious.
When the OP says the spread is worth 5 - when clearly its not- and he is asking about the choices of letting both legs expire ITM then its a reasonable assumption to assume it is expiry and at or right on expiry.
Otherwise he is simply complaining that he cant find liquidity at what he thinks is a reasonable price and is looking for an alternative suggestion - to punt that both will end ITM at expiry and that his broker will consider matching out his positions because he does not have enough to cover it.
Closing it out is the sensible thing other wise he might not even get sufficient liquidity should the actual expiry day see the stock close just below his short strike.

What the OP might not be aware (as he is asking these questions) is that at expiry even if the spread ends a few cents ITM and one might assume that everything will be matched out this is not necessarily going to be the case 100% of the time. Someone who is long your short options might not exercise them - for the same reason - insufficient funds, and you end up having no short offset. Small random chance but still a chance.

If you think 4.45 for a $5 ITM on expiry day call spread is a suitable risk premium or spread for something like this on or at expiry then clearly its a good time to be a MM again.
Though not sure which horse you are beating. I think you are just playing your normal angry self. Enjoy your week.

FXforex · Mar 9, 2014

drownpruf said:
The digital was ~90/100 at exp so I would've let it go into expiry, but it wasn't a slam dunk decision.

You're welcome.

justrading said:
Nice to know I'm not the only one who thinks wistfully of the Atticus nick.

Some wonderful advice proffered under that name.

justrading ...... Could you explain drownpruf's/Atticus's last post? WTF is he talking about, and how does that answer the OP?

drownpruf · Mar 10, 2014

FXforex said:
justrading ...... Could you explain drownpruf's/Atticus's last post? WTF is he talking about, and how does that answer the OP?

The call vert had a greater than 90% prob. of achieving max value, based upon the price of a digital put option struck at 445. The problem with using the digital is that the AH realized vola is much lower than during the day session, especially on a Friday. The valuation of the digital overstates the risk.