Perhaps the convincing part, but overall not a complete waste of time.
Anytime someone more experienced explains the detailed logic of a trade in clear, simple terms, I am more than happy to read the post and test out the ideas.
Options Trader Bets $16.6 Million on 9% S&P 500 Rally
- Thread starter HeSaidSheSaid
- Start date
Perhaps the convincing part, but overall not a complete waste of time.
Anytime someone more experienced explains the detailed logic of a trade in clear, simple terms, I am more than happy to read the post and test out the ideas.
Quote from justrading:
Perhaps the convincing part, but overall not a complete waste of time.
Anytime someone more experienced explains the detailed logic of a trade in clear, simple terms, I am more than happy to read the post and test out the ideas.
It's bozos like Safilo that prevent that from happening.
I'm familiar with the concept of hedging; you're just talking about something that I'm not. I simply stated that the 1925 strike was not arbitrary and explained why. Do you know when his hedge expires? Do you think someone is dumb enough to take a $16M position without some kind of hedge? It's nice that you're proficient at pointing out the obvious but it doesn't change the original point I made.
All long positions depend on the volatility remaining the same or rising - again, obvious so no need to bring it up - and it's a safe estimate that the SPX volatility will not change much if at all...and if it does it is likely to increase due to QE manipulation.
Case in point, if the SPX increases at the rate it has been or better between now and march he is going to make money.
Ok, how about a simple calculation. He traded the options tied in 10% delta. So, if his net size is 17500 contracts, he is short 1750 combos ($300-$340 million of notional). Let's assume, for simplicity sake that he's not going to change his hedge and just rides the 10% detla (if he's hedging properly, he should sell more as S&P is going up).
Now, S&P500 is up 390 (about 27%) on the year, which annualises at about 1.8 per day. Lets assume that it keeps going up at the same rate right up to the March expiration, so that is 1.8pts * 86 business days = 155 pts and would make S&P500 1945. His payout on the options would be 20 dollars of intrinsic times 17500 * 100 = 31,5 million minus the 7.7 million of premium he paid and minus the 26.7 he lost on the hedge. So, depending on how exact you are going to be on the S&P "daily increase rate" he's be down from 3 million to 7 million. Calculations and inputs are below, you can verify them yourself:
size 17500
premium $4.40
delta 10%
spx at 1-Jan-13 1400
spx now 1790
total change 390
bus days from Jan 1st 221
rate per day 1.76
bus days to March exp 85
spx increase 150
spx at expiration 1940
option payout $26,250,000.00
premium paid $(7,700,000.00)
loss on delta hedge $(26,250,000.00)
net profit or loss $(7,700,000.00)
PS. I LOVE management meetings... thank you for saving me from boredom
http://www.cnbc.com/id/101200242
No need to worry. Its all free money.
This guy predicts spx to 2014 in 2014. A rally lasting another 2-4 years.
That's literally free money. Why anyone works these days is beyond me...you can go long this market and never work another day again.
No need to worry. Its all free money.
This guy predicts spx to 2014 in 2014. A rally lasting another 2-4 years.
That's literally free money. Why anyone works these days is beyond me...you can go long this market and never work another day again.
15-13 08:22 AM
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Quote from Safilo:
Uhh...trying to hide your ignorance behind jargon again? At least use the word correctly or show me which options lack convexity - that would be a neat trick.
This guy's strategy is sound. He's counting on the premium values to bump up before expiration, which they will. Plain and simple. Maybe you need to go do some homework instead of downloading KPOP music videos onto your blackberry.
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omg. The hedge is in the underlying, referred to as delta1, you nitwit.
Now I remember why I don't spend anymore time at ET!
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Quote from Safilo:
Uhh...trying to hide your ignorance behind jargon again? At least use the word correctly or show me which options lack convexity - that would be a neat trick.
This guy's strategy is sound. He's counting on the premium values to bump up before expiration, which they will. Plain and simple. Maybe you need to go do some homework instead of downloading KPOP music videos onto your blackberry.
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omg. The hedge is in the underlying, referred to as delta1, you nitwit.
Now I remember why I don't spend anymore time at ET!
Could someone update the PnL on the position (call + hedge (/w initial hedge value to do less work))?
A possible little typo which I do not think would change the conclusion: 31,5 millions should be 35 million? Pointing it out just to keep track of numbers and so that SLE could see that there are actually people who read his posts! If it is not a typo, then I would have removed a typo from my own cloud.
SLE's posts are among the posts I very much enjoy reading!
it seems this trader can kiss the premium good-bye (with the current market condition). serious money requires complicated hedge!
==============================================================/
How about this $180M bet on the SPX? it seems the SPX didn't go high enough for him to break even.
http://www.cnbc.com/id/101055925
Published: Monday, 23 Sep 2013 | 3:07 PM ET
Either the markets are about to get rocky, or one major trader is about to lose $184 million.
On Monday, the CBOE Volatility Index (better known as the VIX) almost instantly popped 10 percent off the opening print, even as things seemed relatively calm in the market. After all, the Chinese overnight data seemed OK, and Apple, a big component of the Nasdaq 100, was off to a roaring start.
However, it seems that a big institutional fund in the marketplace is getting worried. The trade consequently entered by this institution was sizable enough to force market makers to tick up their volatility expectations, and it has me concerned that these markets could get a little shaky through the end of the year.
(Read more: 'Uptrend is intact' for S&P 500: Yamada)
After the market opened, a trader purchased 20,000 S&P 500 December 1,700-strike straddles for $92.00 each. What is a straddle, you ask? Well, the trader bought both the 1,700-strike calls and the 1,700-strike puts at the same time. That means that if the index moves higher, the trader will win on the calls, and if it moves lower, then they will win on the puts they own.
But a win-win situation such as this comes at a price, and this trader was willing to pay a whopping $92 in premium for the luxury. Thus, the trader needs to see the S&P 500 index close either below 1,608 or above 1,792 by December expiration just to break even on the bet. That means this trader has paid $184 million in premium for a trade that could go out worthless if the S&P does not move away from the 1,700 level.
Play Video
Top Wells Fargo strategist: The S&P is going to 1440
Gina Martin Adams of Wells Fargo explains why the market will drop 16 percent by the end of the year, with CNBC's Bertha Coombs and the Futures Now Traders.
And there's something else at play here, too. In addition to betting that the S&P will see a big move, this trader is also betting that volatility will increase, and options will get more expensive.
(Read more: Stocks are about to plunge, Wells Fargo strategist warns)
When people start betting on higher volatility, that makes me concerned that the S&P 500 index is getting a little toppy. And in fact, when I saw this trade Monday morning, I, too, raised my exposure to volatility. However, I tried to do it in a way that lowers my cost
==============================================================/
How about this $180M bet on the SPX? it seems the SPX didn't go high enough for him to break even.
http://www.cnbc.com/id/101055925
Published: Monday, 23 Sep 2013 | 3:07 PM ET
Either the markets are about to get rocky, or one major trader is about to lose $184 million.
On Monday, the CBOE Volatility Index (better known as the VIX) almost instantly popped 10 percent off the opening print, even as things seemed relatively calm in the market. After all, the Chinese overnight data seemed OK, and Apple, a big component of the Nasdaq 100, was off to a roaring start.
However, it seems that a big institutional fund in the marketplace is getting worried. The trade consequently entered by this institution was sizable enough to force market makers to tick up their volatility expectations, and it has me concerned that these markets could get a little shaky through the end of the year.
(Read more: 'Uptrend is intact' for S&P 500: Yamada)
After the market opened, a trader purchased 20,000 S&P 500 December 1,700-strike straddles for $92.00 each. What is a straddle, you ask? Well, the trader bought both the 1,700-strike calls and the 1,700-strike puts at the same time. That means that if the index moves higher, the trader will win on the calls, and if it moves lower, then they will win on the puts they own.
But a win-win situation such as this comes at a price, and this trader was willing to pay a whopping $92 in premium for the luxury. Thus, the trader needs to see the S&P 500 index close either below 1,608 or above 1,792 by December expiration just to break even on the bet. That means this trader has paid $184 million in premium for a trade that could go out worthless if the S&P does not move away from the 1,700 level.
Play Video
Top Wells Fargo strategist: The S&P is going to 1440
Gina Martin Adams of Wells Fargo explains why the market will drop 16 percent by the end of the year, with CNBC's Bertha Coombs and the Futures Now Traders.
And there's something else at play here, too. In addition to betting that the S&P will see a big move, this trader is also betting that volatility will increase, and options will get more expensive.
(Read more: Stocks are about to plunge, Wells Fargo strategist warns)
When people start betting on higher volatility, that makes me concerned that the S&P 500 index is getting a little toppy. And in fact, when I saw this trade Monday morning, I, too, raised my exposure to volatility. However, I tried to do it in a way that lowers my cost
S&P 1440 by end of 2013
HAAAAAAAAAAAAAAAAHAAAAAAAAAAAAAAAAAAAAAAAAAAAHAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAHAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
WHO HIRED THIS TRADER
OMG THESE MORONS TRYING TO PREDICT THE TOP IS MAKING ME SPIT WATER