Ok, I’m looking at an old UVXY1 put, from the last reverse split. The 4 strike expiring in January. It trades at 3.05. Considering it’s an automatic exercise under 40 (because of the old 1:10 split) why not load up on a bunch at 3.05 for a couple months and let the market taken them away at 4. I sense, though, I’m forgetting something. Help, please. Thanks in advance.
Math help on reverse split option
- Thread starter dcwriter2
- Start date
Buy 1 Put (K = $4) @ $3.05 (mid price). You have the right to "sell" UVXY1 at $4 in Jan. (Obviously not "sell" because it is cash settled and reverse split, but you know what I mean.) The indicative value of UVXY1 (not traded) is $1.01. So, this option is ITM by $2.99. You're paying $3.05 if you can get the mid. It's not a steal unless you know where UVXY1 (or other VIX-based products) will be in January, in which case you have lots of other ways (more liquid) to express your market opinion.
Sure, but look at the file I attached. Prices have moved slightly in the past 15 minutes, but right now we have UVXY @ $10.02 and UVXY1 @ $1.00. That's one tenth. You can pay $3.05 to make $3.00 (ie a loss) assuming UVXY / UVXY1 don't move. Run your numbers again.