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American Capital Agency Corp. Message Board

  • yourbestfriendintheworld yourbestfriendintheworld Nov 2, 2012 1:12 PM Flag

    Pumpkin-Spice Dollarmite

    Autumnal split synthetic long with a half-twist ratio.

    Sell 1 Dec 32 Put at 1.05, cost -105 and risk 3095 per unit.
    Buy 1.3 Dec 33 Calls at .75, cost and risk both 97.50 per unit.

    Net 7.50 credit and risk 3192.50 per unit (.033 and 13.88 per share).

    Since it's a credit-out entry, ROI and IRR will be infinite. ROR and IRRR will be similar to the stock, but at a reduced delta. Combined delta is about .43 and crappa about 1640%.

    (Crappa is the ratio of percent change in the option position to percent change in the underlying stock, for those who haven't been here long. The reason for the name should be obvious.)

    In case you're calculating along, I could have bought 1.4 calls per unit and zeroed out the cost. But I'd done the ratio math on the quoted bid and ask before setting limit orders, expecting not to get filled and having to fall back to the quotes, but they filled instantly. Makes the math fiddlier, but makes the pocket fuller.

    All I need now is a dollar's appreciation in the next month. Who's buying?

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    • Hey YBF,

      I have always appreciated your explanations, together with your victories and defeats. We hear often of folks winning, but very few admissions of losses.

      I am upside down on some of my short Put holdings and had a question for you. I noticed when your Dec33Puts were trading up to 3.25, that the 13Jun32Puts were trading at 5.35 bid. You could have rolled those Dec32Puts to 13Jun32's and have still retained a (5.35 + 1.05 - 3.25) 3.15 credit.. We only have to move to 32.50 on the EX run for you to BE... any more would be gravy.

      Just me, I have bailed in the past also, when I figured it was a fall with no net beneath my feet. You are always such an analytically inclined trader I was just wondering why you didn't roll instead of bailing...



      • 1 Reply to reits_r_us
      • yourbestfriendintheworld yourbestfriendintheworld Nov 7, 2012 10:58 PM Flag

        Genuine lack of confidence that the Congress would deal fairly with the White House as the fiscal cliff approaches. Boehner today, after I traded, made some noise about softening, but he was originally Obama's golfing buddy early in the last term. McConnell is the troublemaker, and Norquist can't be voted out of office as chief lobbyist on K street, so Boehner can play rope-a-dope and make Democrats think they're going to get the carrot, right up until the cliff has passed beneath our feet. I don't mind losing what's left of the long-call side of this position, but I didn't like the idea of a deep abyss below the short puts. A flash-crash to the mid 20s would have made me cry real tears.

    • yourbestfriendintheworld yourbestfriendintheworld Nov 7, 2012 11:28 AM Flag

      Ow. Ow ow ow ow ow.

      Had to cover the short Put. $3 each. Only got 1.05 out of them. 1.95 per unit loss. Biggest red bullet I've had to stop with my gut in a couple of years.

      The market will of course now turn and run back up. Because it is run by jackasses.

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