Buy Sept40Put, Short Sept35Put, Buy Sept34 Put, in a 1/10/9 ratio @ EVEN. Maximum profit 5.00, @ 35.00 PPS @ OPEX. Maximum loss 4.00 @ 34.00 PPS or lower @ OPEX. BE @ 34.45(approx) bottom and 40.00 or above on the top.
Ah -- another late night hat trick. Like the good old days.
"What's not to like?"
Well, for one, the bid/ask spread on the 40 put. Assuming you used approximately the quoted ask of 6.35, that's 1.20 over par -- for a deep ITM that has 2 weeks to run.
So again I ask (as I do every time we discuss this trade), why not dispense with the "1" in the 1/10/9 combo and make it a simple 9/9 spread? My late night cloudy brain makes that a net credit of 5.22, which also becomes the max gain (which you keep for ALL PPS above 35, not only AT 35). Max loss is a meagre 3.78, if the late hour is not deceiving me.
Less exciting, for sure, but friendlier, no?
(Using 1.04 for the 35 and .46 for the 34 -- I assume you did too).
Thank you both for replying. As I have discussed on different occasions, the main reason for employing the deep ITM Long Put is for the threat of the EX being moved up to the 21st or earlier, which, as you know, will involve repricing of the Puts.
In my thinking, the deep ITM Long 40Put should be repriced the entire 1.25 dividend, whereas the 35's will be repriced at a percentage lower with each approximately cancelling each other. Even at that, the 35's might work against us.
I only think there is a 10% chance of the date change, and I think there is only a 10% chance of AGNC trading lower than 35 @ OPEX at the traditional date, but if the 10% strikes, your 35/34 in a 1/1 will be sol.
BTW, at announcement, if EX is post OPEX, I will be all over the straight naked ShortPut trade.
I like your revised version. It's late, but the math on "your numbers" looks correct. The 40 put looks unnecessary; your profit profile re-enforces that point. Reduce the moving parts and call it a 1/1 Bear Put Spread with a net credit of .58/spread and a BE of 34.42. Max profit of .58/spread at 35 and above, max loss of .42/spread at 34 (I'm repeating your math at the 1/1 ratio).