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  • instantwinbutton instantwinbutton Nov 27, 2012 3:49 PM Flag

    Put Spread Question... for Doc or anyone else?

    Hi XXAVATARXX. Have you ever traded a butterfly on AGNC?

    The trade consists of buying the $31 call.. say... 100 contracts, then sell the 32 call for 200 contracts, then buy the 33 call for 100 contracts. Your break evens would be this... 31.20 on the low side and 32.80 on the high side. The debit cost would be 0.20. So total cost of the trade is $2,000.00. max profit is 8,000.00. This trade makes the most profit when the stock trades exactly at $32. Time makes the trade profitable as long as the stock is between those ranges. Another thing you could do is sell the $30 puts for 0.70 to offset the cost of the trade. Good luck to you.

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    • IWB,

      Better yet, bid 'EVEN' and only pay commission...nice trade, and hedge...


    • No I haven't tried one with AGNC instantwin.

      I'll take a look


    • Aside/warning on Butterflies...and all short option positions....

      The short leg, which is the highest number of contracts in the Long Butterfly, may be assigned to you at any time. I had this happen to me on LINE last year. So, in the example given, you would be Long 20,000 shares at the 32.00 strike.

      You still have 100 long 33 Puts, to exercise, to offset the position but if we crash down in PPS(say to 28 again) before you can do that, your brokerage might close out your position, if you don't have the purchasing power to cover the $640,000, and then the PPS rebounds to 32.00. You just lost $80,000.(exercising the 33 at that point will give you $10,000 profit, on the 33s, for a total loss of $70,000).

      Food for thought,


      • 1 Reply to reits_r_us
      • Just a point of clarification, the example was a call butterfly, so if the shorts were exercised you would be short the shares (you agreed to sell at the strike price). You could cut your exposure to this situation in half by doing an iron butterfly which combines a call spread and a put spread. One problem (I think, I should know this) is that you don't know if you were assigned until after the market closes so you wouldn't know if you should exercise your long options or put in an order to buy or sell stock.

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