At what price would you start buying LINE? Or are you totally bearish on LINE long term?
"....are badly damaged, even decent companies like LGCY and VNR will be murdered by their hedging this year."
Do you mean damaged as in BK damaged?
That's my point though, perhaps they know their company better then us or else they would've suspended it. I try to see it through their perspective. The last 2 months must have scared the bejesus out of them, so taking the desision to cut is based on that and surely in consideration of their huge debts. Their long term survival is their first priority, I'm sure... Oh well, time will tell...
I think if LINE was in as bad shape as you calculated, management would have cut the distribution even more to save money for the "bad times". LINE has always stated they are focused on long term. I'm sure they reviewed a scenario where oil stays low for a long time too....
Considering that the distribution reduction is a fresh decision and I'm sure the board considered all their circumstances, wouldn't they have cut it even more if they were in as bad shape as you calculated they are?
Thanks. Actually there aren't too many options plays in the upstreams sector unfortunately. Not enough premium, liquidity and strikes in the options markets in the others. LINE seems to have at least premium and strikes to play with...
Yep, I'm with you rivvir... when premium is high I like to sell it. I don't like paying premium period, unless it's cheap and even then I spread it....
Tons of premium over in the LINE options still. Thinking of selling the $11 (ATM ) straddle tomorrow and buy the $13 call for a $2+ credit, thus no risk to the upside and BE under $9 February expiration.
This 3-legged spread is called "big lizard", I heard it on the tastytrade network. Works great on high premium options on stocks that are on their butt with high volatility rank. A neutral premium collecting strategy with no upside risk. Sweet spot is $11 with a cushion range $9-$13. I'd hold it for 50% profit, then I'm out...
We'll see where LINE is tomorrow, the key to this spread is that the credit collected is greater then the strike difference between the straddle and the long call.. Otherwise it's a no go...
P.s. You can do GTC orders on the $2.50 calls, if you want those really cheap.
Good Til Canceled (GTC) order would just sit there and if there is another flash crash or just an intra day spike down, you might get lucky and grab cheap shares...
Not much of an options play here on EROC, but waiting for LINE in single digits to start layering some ratio spreads...
I'm confused. What problem do you see with it?
You can be at the screen when a flash crash happens and it's just too hard to chase it. Where as if you had a GTC buy order at say $1.80 yesterday, it would have likely filled. Sometimes these crashes last only seconds so if your order is there you can get lucky. You can basically put some orders at $1.75 another at $1.5 another at 1.25 or whatever numbers up you are comfortable. If it hits, great...
Yeah I think setting some GTC buy orders at rediculous low prices is the way to go with these flash crashes.
Yeah, it all depends on time frame of the trade. I'm willing to wait up to a year to let the trade blossom, meanwhile, the time premium of the 2 short legs is decaying in my favor, offsetting almost all of the premium I paid for the long leg, while allowing me to do the 3:1 ratio for unbelievable leverage.
If LINE goes to $20 tomorrow, my 3-legged spread would be profitable, but I'd still have the drag of the short calls, while your long calls trade would be the more successful trade with much higher appreciation.
So in Hawaii, you'll be watching the market all night and sleeping all day... ?!
If LINE visits the single digits again I'll probably duplicate the trade but maybe beef up the ratio to 5:1 or drop the long call strike, hmm lots of ideas, just have to be patient...
Yes correct, I bought the $13 calls , sold the $20 calls and sold the $8 puts all in a 3-legged spread for $.45 debit. My ratio was 30:30:10.
The price you are getting now is higher because LINE moved up a couple of bucks since the morning. Here are my actual fill prices (10 minutes after opening bell when LINE was under $10) from my activity page :
BTO Jan 16 $13 calls @$1.52 (qty 30)
STO Jan 16 $20 calls @$.45 (qty 30)
STO Jan 16 $8 puts @$2.76 (qty 10)
Total paid $450 plus transaction fees.
Technically, short puts can be assigned to you at anytime. However, there is so much extrinsic value in them, that it would be extremely unlikely even if they become deep in the money.
If it's January 2016 and LINE is at under $8, there would be almost no time premium left in them, so thus more likely of assignment. But if in the next few months LINE drops to under $8 and I get assigned the shares, all that premium ($2.76) would be a gift to me, because I didn't have to wait till jan 16 to get it all. It's very unlikely, but it could happen. Does that makes sense?
In the unlikely event of an early assignment of the puts, I would just sell the shares and sell the exact puts simultaneously to get more premium, thus improving my over all spread cost.
So if I'm still with this trade by December 2015 and LINE is between $8 and $13, I would probably just close the spread and do a similar for 2017. As long as LINE is above $13.45 by expiration, I'd make money.
On a side note, I have some 33 short puts that I'm stuck with for a year and I just roll them every month to collect more premium, I do that a month ahead of expiration so there is always a little premium left. I've never been assigned the shares on those very very deep in the money puts.
Hard to argue with 20% in a day. Hopefully we see the single digits to load again.
I took a 3-legged option position at the opening bell today. Bought the jan16 13/20call spread and financed most of it by selling the jan16 8puts in a 3:1 ratio to max out the leverage for the call spreads and limit my naked put exposure. my cost was $.45.
Actual numbers : bought 30 (jan16) 13/20call spreads and sold 10 (jan16) $8puts, my total cost was $450. This is a one year play, if LINE is $20 or higher on jan 2016 expiration, I make $20,550 on this trade. If LINE goes to $0 I loose $8,450 from my naked put exposure.
Based on my $450 cost for this 3-legged spread, it is a x45 bagger if LINE is at $20 or higher a year from now... Not bad for leverage :)
LINE has 100% IVRank because of the panic so it's time to take advantage of these fat premiums in options, if one beleives LINE would be higher a year from now. In my opinion, buying call options is just way too expensive now.
Yeah, LINE tends to have expensive options in general, it would have to stay here for a while in order for the OTM options to come down.
I'm actually reviewing some idea from a poster a while back on a 3 legged spread.
So to take advantage of the fat premium and low share price, I'm looking at selling the January 2016 $8 or $10 puts to finance the purchase of 2x call spreads ( maybe 15-30) . I'm still massaging the strikes to see what makes most sense, but I'm looking for break even in the single digits and getting cheap leverage to profit if LINE goes back up to $20+.
I prefer to play it for 2016 because I want to get out of the trade sooner then 2017. And if we are still at $10 in 2016, oh well I'll just repeat it with a similar spread for 2017.