How to Salvage a Ruined Position?

[monkeyjoe]

Quote from atticus:

Yeah, it's too late to do anything unless some shares materialize. I feel for you, Brother. Years ago, I had a similar scenario in a large TASR box. The 15s are going to be a problem.

Trading the synth is ok, but my guess is that it won't drop further. It's at a <$2 discount as of the close.

Quote from atticus:

You can't do anything about the 15s and any further rally isn't going to impact the ex/assignment. When the stuff goes discount (15-strike) you'll get assigned.

Selling the synth isn't a good bet here. It's an implied rate of >60%.

Thanks man. My idea was actually to go long the synthetic for the $1.60 credit, as my position net delta is -20 (whatever that actually means right now). It wouldn't be perfect, but might act as a hedge if the shares go further north, which I suspect would speed up the early ex on the 15s.

If the underlying goes back to the center of my strikes, I suspect that will delay the 15s going discount. I have 8 contracts in the position, so one contract of synthetic long would lose me $800-1200 (figure $8-12/share), if underlying goes to $26-30, but would salvage me the rest of the position (almost $3k).

Worth selling out of some of it to try this? ... or better to just sell out of some now before it gets worse? (and try Ghost's idea of waiting and seeing with less money at stake).

At least I'm playing with house money from Sprint.

 

[atticus]

Quote from monkeyjoe:

Thanks man. My idea was actually to go long the synthetic for the $1.60 credit, as my position net delta is -20 (whatever that actually means right now). It wouldn't be perfect, but might act as a hedge if the shares go further north, which I suspect would speed up the early ex on the 15s.

If the underlying goes back to the center of my strikes, I suspect that will delay the 15s going discount. I have 8 contracts in the position, so one contract of synthetic long would lose me $800-1200 (figure $8-12/share), if underlying goes to $26-30, but would salvage me the rest of the position (almost $3k).

Worth selling out of some of it to try this? ... or better to just sell out of some now before it gets worse? (and try Ghost's idea of waiting and seeing with less money at stake).

At least I'm playing with house money from Sprint.

The 15s are 22+ in the money now. You're taking further risk on the carry if things get tighter and actually adding risk by going long the synth. Stock drops and you lose on the synth and still get assigned.

 

[monkeyjoe]

Quote from atticus:

You can't do anything about the 15s and any further rally isn't going to impact the ex/assignment. When the stuff goes discount (15-strike) you'll get assigned. It's probably there already. You need to stick with five and ten-wides on these sort of things to withstand the var on the borrow. It's like trading boxes on SPX with rates going from 5 to 80%.

Selling the synth isn't a good bet here. It's an implied rate of >60%.

Just saw this. If it ain't gonna get much worse, I'll probably wait on it and hope the price collapses back down. No difference really between locking in the loss myself and getting it locked in for my by early ex... and probably not worth the drama of trying to dream up some clever hedge.

Thanks for the tip. Stored in the memory bank for the future! Mostly makes me wish I was on the other side of the trade, or that this spike has squeezed out enough shorts that I can get some cheaper shares.

 

[atticus]

Stock is dropping AH. I suppose a bit lower risk of assignment. If it trades back into the mid 20s you have a shot as the 15P may have some juice.

Doesn't help you know but ppl blow-out in these seemingly juicy wide boxes on HTBs. Have fun with them but keep them narrow and near-ATM.

 

[monkeyjoe]

Quote from atticus:

The 15s are 22+ in the money now. You're taking further risk on the carry if things get tighter and actually adding risk by going long the synth. Stock drops and you lose on the synth and still get assigned.

Quote from atticus:

Stock is dropping AH. I suppose a bit less risk of assignment. If it trades back into the mid 20s you have a shot as the 15P may have some juice.

Atticus, really, thanks again. Saving me from myself!

As of the close, it looks like I am now down only about $1.75/share at the mid. You sure were right about the vol on these things being scary.

Fingers crossed for a huge drop.

 

[atticus]

YW, and I'll be watching it. And model 2-3x a change in the borrow on any high yielding fly. Stay ATM!

 

[monkeyjoe]

Quote from atticus:

Doesn't help you know but ppl blow-out in these seemingly juicy wide boxes on HTBs. Have fun with them but keep them narrow and near-ATM.

Didn't see this the first time. It totally makes sense though. Man, no wonder you never find these with europeans!

You know of anyone who ever modeled taking the other side of these?

 

[atticus]

Quote from monkeyjoe:

Didn't see this the first time. It totally makes sense though. Man, no wonder you never find these with europeans!

You know of anyone who ever modeled taking the other side of these?

It's always a crap-shoot. There isn't a lot of demand there unless you're working for a IB and you know stuff is going to go HTB. It's not inside-info in the traditional-sense. Anyway, it's not something terribly predictable. The demand is for the initial coupon.

 

[FSU]

When you put this position on, did you leg it, or offer it as a box?

Depending on how you put it on, you may have given up more edge then you think.

The best way to tell where this box is going for is looking at the at the money combo, (which as atticus said is going for about 2 over the stock) This will give you a better idea then looking at the 15 calls.

You really need to take this position off and just take your loss. You have too much risk of being assigned and then being bought in on your short stock. I just checked with Merrill Lynch, and they have no stock available at any rate.

If you buy the box back I would suggest putting it in as a spread and slowly increasing the price until you are filled.

 

[monkeyjoe]

Quote from FSU:

When you put this position on, did you leg it, or offer it as a box?

Depending on how you put it on, you may have given up more edge then you think.

The best way to tell where this box is going for is looking at the at the money combo, (which as atticus said is going for about 2 over the stock) This will give you a better idea then looking at the 15 calls.

You really need to take this position off and just take your loss. You have too much risk of being assigned and then being bought in on your short stock. I just checked with Merrill Lynch, and they have no stock available at any rate.

If you buy the box back I would suggest putting it in as a spread and slowly increasing the price until you are filled.

I offered it as a box, but the spreads were pretty tight at the time. Probably gave up 0.35/share off the mid because I didn't want to face directional risk from the underlying hopping around so much... though I did do it as a limit order and waited for a fill.

There was still a little juice left on the 15 calls at the close if calculated from the mid, and there will likely be more on the open. Honestly, the spread was so wide on them that I bet I'll eat less of the spread having to close out an assigned stock position.

I guess the borrow could go to infinity, but I sure hope not. Not counting the after hours price drop, my mark-to-market position gained back some over the course of today's action.