How to Salvage a Ruined Position?

[donnap]

Borrow appeared briefly at IB yesterday, now gone.

Probability of assignment high, if not already. Why would holders, hold? Sucks being OI.

Many have been in messes of our own making. No free money, eh? Hopefully, lessons learned.

15/40 was too wide. Short call was problematic from the start. You got the credit because of the box structure and borrow. But survival of the wide box isn't likely.

Sizing is important. Flexibility is important.

Looking at scenarios. What can go wrong. Borrow costs may have been surprising, but at least considered. And had the borrow eased, early assignment would still be a factor with either puts and/or calls. Of course, at least the box would be profitable in that scenario.

 

[monkeyjoe]

Quote from donnap:

Borrow appeared briefly at IB yesterday, now gone.

Probability of assignment high, if not already. Why would holders, hold? Sucks being OI.

Many have been in messes of our own making. No free money, eh? Hopefully, lessons learned.

15/40 was too wide. Short call was problematic from the start. You got the credit because of the box structure and borrow. But survival of the wide box isn't likely.

Sizing is important. Flexibility is important.

Looking at scenarios. What can go wrong. Borrow costs may have been surprising, but at least considered. And had the borrow eased, early assignment would still be a factor with either puts and/or calls. Of course, at least the box would be profitable in that scenario.

Yeah, definitely learned my lesson. Fwiw, got back about $1.50/share when the borrow came down and closed out 4 contracts. It might actually be better to wait to get assigned, saves me the wide spread on the 15 calls.

 

[donnap]

Yeah, thanks for posting that. It's a pretty interesting example.

I'm sure I've been there, done that.

It sounds like you got a better handle on the trade now.

Just gotta manage any assignment.

 

[noob_trad3r]

Quote from monkeyjoe:

The strikes are at 15 and 40. Last print was 37.85, and it was up right around 40 this morning.

I do not understand why did you make it so wide? especially if you could not handle it reaching up there?

It seems pointless to do so if you cannot handle to position hitting 40 for example.

 

[cvds16]

Quote from Ghost of Cutten:

The way to 'salvage' any bad position is always the same. Ask yourself "If I was flat, would I still strongly want to put on this position, given the hostile market action?". If the answer is not "yes definitely!" then you should exit the whole position immediately.

Attempts to deny the necessity of getting flat e.g. putting on a 'hedge' or spread, legging out, or any other reason, are net losing decisions, sometimes disastrously so.

If you can't bring yourself to exit the whole position at once, then exit half and see what happens. If things get worse, exit the rest. This reduces the pressure of making an all-or-nothing decision, and some people find it easier to exit piecemeal.

+1

 

[monkeyjoe]

Quote from noob_trad3r:

I do not understand why did you make it so wide? especially if you could not handle it reaching up there?

It seems pointless to do so if you cannot handle to position hitting 40 for example.

It was a mistake. It wouldn't be a problem except UNXL is hard to borrow, and the borrow got worse. Of course, HTB was the only reason I could put the box on for a credit anyway... so like I said, noob mistake.

Needed wide strikes to make it a credit.

 

[atticus]

Quote from monkeyjoe:

It was a mistake. It wouldn't be a problem except UNXL is hard to borrow, and the borrow got worse. Of course, HTB was the only reason I could put the box on for a credit anyway... so like I said, noob mistake.

Needed wide strikes to make it a credit.

You may as well be typing cyrillic as the joker has no concept of the risks associated with a box in a single-name. He just feels the need to comment as my dog feels the need to bark.

 

[monkeyjoe]

Quote from atticus:

You may as well be typing cyrillic...

Options... it's all Greek to me!

Time to turn this into a pun thread.

 

[donnap]

FWIW, these boxes exist all the time. I was looking at the USO 31.5/32 May box today, and saw about a .15 credit at mid. But just try to get mid.

It looked pretty good until you think about costs. What do you suppose the probabililty is of this box making it to expiry? It straddled ATM.

Whatever, look at costs. Not worth it.

 

[monkeyjoe]

Quote from donnap:

FWIW, these boxes exist all the time. I was looking at the USO 31.5/32 May box today, and saw about a .15 credit at mid. But just try to get mid.

It looked pretty good until you think about costs. What do you suppose the probabililty is of this box making it to expiry? It straddled ATM.

Whatever, look at costs. Not worth it.

I didn't get mine at mid, but I did better than the ask. The real problem is finding one where the stock is not HTB, and not going HTB through the life of the spread (hard to guarantee). That way, getting assigned just means you hold the short/long position til expiry. Problem here is holding an assigned short position is impossible because it's HTB and the float is tiny.