The options for TLRY are also crazy. Thursday and Friday there were considerable Iron Fly and IC sales for more than the width of the strikes (i.e. guaranteed profit in theory). The thing is that it is so volatile and the spreads are so wide you have no idea whether you could ever close ahead of settlement and what happens if there is early assignment between the strikes? Before you hear of the assignment and you buy the short shares from an exercised short call against you the stock might have sped away in any direction.
TLRY borrow rate at IB is.......
- Thread starter mskl
- Start date
Robert Morse
Sponsor
Yes but you will be hedged by the other options until you close the stock position and roll out of your options,
You'll be hedged, but you'll still be paying at least one night of insane borrow fees, or three if the settlements span a weekend.
Also, another question I had, is that since owning the call is preferable to owning the stock at current prices, why would you want to buy and exercise the call (even though its trading below IV)? I get that its trading below IV, but only by ~$0.05, nothing compared to the spreads and volatility in the stock.
I don't know how much of the implied borrow is paid out to holders but my sense is that its not much and may not compensate for the option + time value of owning the call.
To buy and exercise the call trading at $0.05 or so below IV, you would need to hedge the risk of the stock falling in the meantime if you just wanted to lock in the $0.05 profit? Aren't the one day borrow costs + spreads too high for early exercise to be profitable?
I don't know how much of the implied borrow is paid out to holders but my sense is that its not much and may not compensate for the option + time value of owning the call.
To buy and exercise the call trading at $0.05 or so below IV, you would need to hedge the risk of the stock falling in the meantime if you just wanted to lock in the $0.05 profit? Aren't the one day borrow costs + spreads too high for early exercise to be profitable?
If you want to be long then buying the call is preferable to owning the stock, but a market maker generally wants to be flat. When they bought the call from you, they likely immediately shorted the stock. Holding that hedge is expensive, so they have to exercise that day to pocket ~$0.05. They don't have to pay any borrow fee since they're not holding the short overnight. On the other hand, you don't receive the assignment notice until after the close, but you're still required to deliver T+2. So even if you cover first thing the next day, you'll be charged one night's borrow fee.
Robert Morse
Sponsor
Correct. The risk of selling ITM calls in Reg-SHO symbols.
@elt894 and @Robert Morse
Right, makes sense. In your experience, what %age of time does this happen? It seems like TLRY put/call ratio is currently 0.8, although that doesn't tell me much about aggregate market maker's delta in options market. There is a chance that doesn't happen, right?
Right, makes sense. In your experience, what %age of time does this happen? It seems like TLRY put/call ratio is currently 0.8, although that doesn't tell me much about aggregate market maker's delta in options market. There is a chance that doesn't happen, right?
Robert Morse
Sponsor
Look at the open interest and watch it change. If the option is on a Reg-SHO symbol and all the ITM calls out three months have no OI, you have to wonder.
