Yes, I took four years of Latin and I hated it. Who cared about Caesar? He was long dead and I was glad. How many times did we have to recite declensions. How many remember that? The Jesuit priests warped us poor guys. It was bad enough we didn't have females in our school(leading to wired sex maniacs upon graduation), but we had these grown men in long black robes with hack paddles, slamming the H out of our butts for the smallest infraction. We lived, but that's why we are the way we are...;-)
I'll tell you what I do love though, and its the March Papilio(Butterfly) trade on AGNC for close to BE cost. Here it is:
MarPuts33/34/35 on a Butterfly going Long the 33 and 35 and Short the 34 in a 1:2:1 ratio for as close to BE as you can get. In the unlikely event you hit BE on , for example, a 100/200/100 contract trade your maximum loss is zero(I love that sound), and your maximum gain is $10,000(love that more) @ PPS @ OPEX of 34.00, which is my prediction.
The winner's circle is any PPS between, but not including, 33-35, which, IMO, is a great range for the final PPS @ OPEX(Mar 15th), which should happen about a week prior to Mar EX.
Anyway, this is for your weekend rumination, the trade, not the Papiliones(have to pronounce it as if you were Italian..pah, PEE, lee, OH, nays...Oh, those Jesuits...;-)
Hey Ephort are you out there? I need to wrap my mind around early assignment on this GTC order I placed last night on this Butterfly trade I described. (BTW, for others unfamiliar with being assigned on short options, this trade is not for you.)
Lets take some, "for examples". Suppose after entering this trade the PPS is @ 32.00 in early March, and you are assigned 100 of the 200 short contracts(34 Puts), or 10,000 shares long @ 34.00.
What would you do?(Besides run screaming and hide under your bed). Would you call your broker and ask them to exercise your 35 long puts, your 33 Long Puts or a combination of both or would you ride the long shares to OPEX?
This has happened to me a number of times(I didn't fit under my bed, I checked..;-))
Let's take each one in turn. Suppose, in order to rid myself of the Long share exposure I exercised all of the 33 Long Puts , which would place me Short @ 33.00, for 10,000 shares. These 10,000 short shares would cancel the 10,000 Long shares @ 34 and I would see a 10,000 debit(not credit) in my account.
The underlying PPS could subsequently move up to 35.00 the next day and stay there or higher until OPEX and my Long35Puts and the Short34Puts would expire worthless leaving me with a loss of 10,000 dollars. Not a good play.
Scenario number two is to exercise the 100 Long35puts after assignment on the 100 Short34Puts. That would place a credit of 10,000 in your account. Now, no matter where the PPS went and no matter when or if the other 100 Short34Puts were assigned you would have the 10,000 in your account to cover the difference between the remaining 100 short34Puts and the Long33Put strike. Below 33.00 the 10,000 credit and the 100 Long33Puts cover you down to a PPS of zero.
Suppose 200 contracts of the Short34Puts had been assigned early. You could again exercise the 100 Long35Puts. At that point you would have 10,000 credit in your account and be long 10,000 shares @ 34.00. You are loss protected between 34 and 33 PPS with the 10,000 credit and loss protected below 33 between the 10,000 credit and the 100 Long33Puts.
So the moral and a very, very important one, is to never exercise the lower strike on a Long Put Butterfly before the higher strike is completely used up, when assigned on the short body of the Butterfly.
Finally and the reason for the post and a call out to Ephort or anyone else, we have a possible interesting scenario coming up to an early month OPEX. Suppose EX comes before OPEX as happened last March, and you have been assigned the 200 Short34Puts on March 1, for example, or 20,000 shares Long. Do you exercise your Long35puts as mentioned above or wait and see if the EX comes prior to OPEX.
If the Ex comes first, you could hold the Long shares @ 34.00 cost. Suppose we hit 34.00 on the DBEX(day before EX). Accept the dividend on EX for the 20,000 shares. Suppose the PPS falls to 32.50 on the EX date. Exercise your Long 33 and 35 Puts. You lost 30,000 on the 34.00 Long shares(20,000 shares x 1.50), you gained 25,000 on the Long35 Puts(exercised as short shares), and gained 5,000 on the Long33puts(exercised as short shares), for a BE wash as expected.
The main outcome is that you collected the dividend on 20,000 shares. That is why, IMO, it is highly, highly unlikely that anyone would assign you Long shares on this Butterfly as we approach an EX date because they would not want to be short the shares heading into an EX run and possible responsibility for paying the dividend.
Did I get all that right? Any insights or corrections would be appreciated. Hopefully this helped someone out there as far as the mechanics go, when assigned, on a multiple legged Put spread.
I'm trying to get up to speed after a week long hospital interlude, and this sounds interesting. Your explanation of the trade and potential downsides is excellent, as always.
Like appl1000, I wonder what the spread cost does to it. To continue the literary thread, and paraphrase a ring poet: I would like to fly like a butterfly, but not be stung by a bee.
I would say that you have done very well with that decision tree analysis. I don't have anything to add (especially after wine and more). The moral I would point out (which we have discussed before) is that a trader should watch like a hawk any option position that includes short legs, as it can transform into a different beast if you are assigned.
All these words (with the help also of the wine) remind me of The Hobbit, which I saw recently. When Gandalf (you...) was stuck in a tree with the dwarves (short legs...), threatened by Saruman's beasts below, he had to make a quick decision, so he sent a message to the eagles (let's call them big hawks...) with a butterfly...
amo, amas, amare - I love, you love, to love.
The priest from which I took Latin was arrogant beyond what most could imagination. He would berate us for our feeble attempts to translate in real time commenting regularly of our incompetence. It was as if he considered us unworthy students or maybe just unworthy to speak the language. I'm guessing that it was this attitude that landed him the position of teacher, one he seemed to loath to do well. I can still remember him walking into the class room and looking out at his students in disdain as if he was thinking. "Oh you again." Forget being late. You would be locked out of the room and he would ignore your knocks. No one was late.
What you wrote is true. We had to start each day for four years reciting in unison these conjugations. Here is what the conjugation looks like and the way we recited it:
amo (I love)
amare (to love)
amavi (I loved)
1) Present Indicative
3) Perfect Indicative
4) Perfect Passive Participle(imperative)
We would start each day reciting in unison:
Laudo, Laudare, Laudavi, Laudatus
Laudare: To Praise!!
Hi Jess and Aapl1000,
I hope you are in full recovery mode Jess after the hospital stay. I wish you good health...
I think you both misunderstand the beauty of this trade if purchased at the right price. I pay through the nose for commissions from Fidelity on high option orders. The round trip for this Butterfly will cost me a few bucks North of $500 for commissions, on the 800 contract round trip(400 options on both sides).
You place the order as a "Butterfly" spread and bid a certain price. Right now the spread is -.42/+.42 with a midpoint of EVEN or zero cost. Are you kidding!! No MM will take it at EVEN(maybe), but maybe they will for .10, which would cost you $1,000 for the 100 contracts(BTW does everyone know that when you buy a Butterfly, or any spread, the cost you pay or the credit you receive is the bid/ask you enter times the number of contracts on the wing, or lowest member, not the body. That is, the ratio is 1:2:1, with the wings the 1's and the body the 2, hence "Butterfly").
So on the 100:200:100 Butterfly @ .10 cost, you pay 10.00 x 100 contracts or $1,000. Then you have the commissions( I pay)of $500.00, so a net cost of $1500 if I get filled @ .10. So that changes your BE on the 33/34/35Put Butterfly to 33.15 to 34.85, with the sweet spot being @ 34.00 at which point, if OPEX is @ 34.00 a profit on the 35 wing of .85 x 100 x 100 = $8500.
You let this expire to answer both your questions(so the spread is moot). I bet heavily on the OPEX coming before the EX date. So whatever price we are at on March 15th close will determine my profit. All I can lose is the $1500 cost(Do you get that part??). The beauty of the Butterfly is that you are protected beyond the 1500 cost down to zero PPS, IOW totally. If you get the trade at EVEN, SCORE!! You have a zero risk bet outside commissions...that is what is so incredible.
Get assigned..SCORE, if your brokerage will allow you to float the shares if you don't have the cash to buy them. As I said, then you want the EX to come before OPEX and you reap an extra 20,000 shares x the dividend...how great is that? Then post EX when OPEX comes everything dissolves in the mist because your Long 33s and 35s have you totally protected.
Suppose the PPS goes to 30 post EX @ OPEX. You were assigned @ 34 so you are down 4.00 on the 20,000 shares or $80,000. The 100, 35s are worth 5 x 100 x100 or $50,000(and assigned Short as 10,000 shares@35)and the 33s are worth 3 x 100 x 100 or $30,000(and assigned short as 10,000 shares @ 33), so you BE.
If the dividend is 1.25 you walk away from the trade with $25,000 (1.25 x 20,000) minus the commission. Pretty awesome..can I lose the $1500? You bet(outside 33-35 @ OPEX). Do I think it is worth the risk? My GTC order is waiting for the MM. I'll keep you posted...;-)
Disclaimer: You can be assigned on this trade and become responsible for buying the 20,000 shares @ 34 in this example @ a cost of $680,000. That was on a 100:200:100 Butterfly. If entering this trade please do so with enough resources to cover this potential cost. You can modify the number of contracts to meet this requirement, as an example 10:20:10 Butterfly, wherein your potential cost becomes $68,000, with a potential max reward of just over(commission difference) $850.
In this scene Brian is slapping an anti Roman slogan on a prominent wall, to prove his loyalty to the People's Front Of Judea
Brian is writing a slogan on a wall, oblivious to the Roman patrol approaching from behind. The slogan is "ROMANES EUNT DOMUS".
What's this thing? "ROMANES EUNT DOMUS"? "People called Romanes they go the house?"
It... it says "Romans go home".
No it doesn't. What's Latin for "Roman"?
Come on, come on!
Vocative plural of "#$%$" is?
(takes paintbrush from Brian and paints over) "RO-MA-NI". "EUNT"? What is "EUNT"?
Conjugate the verb "to go"!
"IRE"; "EO", "IS", "IT", "IMUS", "ITIS", "EUNT".
So "EUNT" is ...?
Third person plural present indicative, "they go".
But "Romans, go home!" is an order, so you must use the ...?
He lifts Brian by his short hairs
The ... imperative.
Um, oh, oh, "I", "I"!
How many Romans? (pulls harder)
Plural, plural! "ITE".
Centurion strikes over "EUNT" and paints "ITE" on the wall
"I-TE". "DOMUS"? Nominative? "Go home", this is motion towards, isn't it, boy?
(very anxious) Dative?
Centurion draws his sword and holds it to Brian's throat
Ahh! No, ablative, ablative, sir. No, the, accusative, accusative, ah, DOMUM, sir.
Except that "DOMUS" takes the ...?
... the locative, sir!
He strikes out "DOMUS" and writes "DOMUM"
Now write it down a hundred times.
Yes sir, thank you sir, hail Caesar, sir.
(saluting) Hail Caesar. If it's not done by sunrise, I'll cut your balls off.
(very relieved) Oh thank you sir, thank you sir, hail Caesar and everything, sir!
No..I knew I bid off the grid, but you never know. I would go the Put route rather than the Call(which is similar in price) because the advantage is to the Put side, if assigned. The Puts are not likely to be assigned and if they are that would be an advantage, as I outlined, in potentially collecting the dividend if EX is pre OPEX.
The Short Calls are likely to be assigned and if the EX occurs before OPEX you would be left trying to unwind the Long wings, which would not be a problem(just exercise them), but you end up losing your initial cost + commissions in so doing(that is, the spread is internally neutral or BE once all of the parts are assigned or exercised, so you are left with only the price of admission).
I did look at the Call Butterfly before placing my order and my reasoning for the Puts, fell along these lines described.