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Strategy to ride premium down on GRPN puts
- Thread starter jmhunter
- Start date
It all depends on where the UL is trading when you are assigned. You might make something. You might lose something. It doesn't have to be a short squeeze - call can trade below parity and gets arbed. However, if it is a short squeeze, rut roh!Quote from edfor:
So what happens if you short a call and for some reason get assigned early when the stock can't be borrowed? Can't they just buy you in at whatever the going rate is and you don't really lose anything?
Unrelated to options... I've received numerous dictums over the years to cover a short equity position. You get a mid afternoon bulletin and you have until 4 PM to cover or they buy it in at whatever the price. Never had a short call assigned and unborrowable so I don't know if they give you any notice (broker discretion) or they buy you in immediately.
I've found that at some strikes a box spread on groupon is positive. In theory this should be a risk free profit, but it requires selling a call at what is slightly lower than intrinsic value, like 5 cents under.
Will market makers break up my arbitrage by just assigning the calls instantly to collect a few pennies, or are they just going to hold them?
Will market makers break up my arbitrage by just assigning the calls instantly to collect a few pennies, or are they just going to hold them?
Quote from edfor:
I've found that at some strikes a box spread on groupon is positive. In theory this should be a risk free profit, but it requires selling a call at what is slightly lower than intrinsic value, like 5 cents under.
Will market makers break up my arbitrage by just assigning the calls instantly to collect a few pennies, or are they just going to hold them?
I decided to gamble on the "risk free" option bet. Did a 23/15 box spread for December, and a couple of other combos when I saw those with a high net credit, 35 times overall.
The one I did the most of was 8.75 net credit and I lose $8 no matter what the price ends at so long as they are held to expiration. But I had to sell calls at around 3 cents under intrinsic value to make it work, so I hope they aren't assigned. I would have probably bought a ton more if I had portfolio margin, so Reg T margin either saved me a ton of money in case I get assigned or caused me to miss a ton of free money. In theory I just made 2.5k after commissions. We'll see.
Quote from edfor:
I decided to gamble on the "risk free" option bet. Did a 23/15 box spread for December, and a couple of other combos when I saw those with a high net credit, 35 times overall.
The one I did the most of was 8.75 net credit and I lose $8 no matter what the price ends at so long as they are held to expiration. But I had to sell calls at around 3 cents under intrinsic value to make it work, so I hope they aren't assigned. I would have probably bought a ton more if I had portfolio margin, so Reg T margin either saved me a ton of money in case I get assigned or caused me to miss a ton of free money. In theory I just made 2.5k after commissions. We'll see.
If you get assigned and your broker does not have any shares you will get bought in. Not the notice to cover a short like some are talking about but the clearing firm will buy you in and that sucks. It 99% of the time will be the high print of the day. Also it doesnt have to be in a short squeeze your clearing firm may just not have the shares.
Quote from edfor:
I decided to gamble on the "risk free" option bet. Did a 23/15 box spread for December, and a couple of other combos when I saw those with a high net credit, 35 times overall.
The one I did the most of was 8.75 net credit and I lose $8 no matter what the price ends at so long as they are held to expiration. But I had to sell calls at around 3 cents under intrinsic value to make it work, so I hope they aren't assigned. I would have probably bought a ton more if I had portfolio margin, so Reg T margin either saved me a ton of money in case I get assigned or caused me to miss a ton of free money. In theory I just made 2.5k after commissions. We'll see.
You WILL be assigned on your short 15 calls. There is no short stock out there so MM's will exercise these to get long stock. There is much more risk in this position than you think do to your imminent assignment and potential buy in at an unknown price. This is a horrible trade, esspecially for a public customer. If you must do it, keep it very small an see how it works.
Quote from edfor:
I decided to gamble on the "risk free" option bet. Did a 23/15 box spread for December, and a couple of other combos when I saw those with a high net credit, 35 times overall.
The one I did the most of was 8.75 net credit and I lose $8 no matter what the price ends at so long as they are held to expiration. But I had to sell calls at around 3 cents under intrinsic value to make it work, so I hope they aren't assigned. I would have probably bought a ton more if I had portfolio margin, so Reg T margin either saved me a ton of money in case I get assigned or caused me to miss a ton of free money. In theory I just made 2.5k after commissions. We'll see.
Also, the most you could make on this trade is .75 so does this mean you sold 30 boxes? Based on where the reversal is trading you also gave up about a fair amount of edge as well.
I sold 35 boxes at around .75 each, that's 2625 in profit minus around 100 in commission. I only gave up 3 cents on the calls. I can't imagine market makers are going through the trouble of adding liquidity on calls so they can reap a massive 3 cent discount on a long position of a stock they wouldn't want to hold anyway. I'll see how it goes, can't imagine I could lose much, maybe the daily trading range of groupon.
If it happens to drop below 24 quickly and never rise up past there again then I can't possibly lose even if assigned. I think it's worth the risk.
If it happens to drop below 24 quickly and never rise up past there again then I can't possibly lose even if assigned. I think it's worth the risk.