Google may actually end up doing this if the spread becomes too wide. They will have to determine the proper amount. Just enough to narrow the spread Too large a dividend would cause the spread to go the other way.
The spread has now widened to $13 in favor of GOOGL.
If GOOG does become the preferred trading issue, do you think this spread will narrow?
Because of the lower delta for the June calls, you will not get max profit if it were to quickly reach 50. This is why I have multiple strategies going for VXX using different months. I also like to scale in and out as the price fluctuates with open options and spreads. Even if I am not getting max profit on a spread, I will still close it out if it has a reasonable profit. In the example above, if the price were to quickly rise to 50, you would show a profit of over $300. A quick 45% profit would be good enough for me, considering the risk of playing the long side of VXX.
I am expecting some form of a correction within the next couple of months. I am reducing my risk by just using call spreads on VXX and keeping my target price at 50 or less. But 55.55 is a very real possibility due to the long time period since the last correction.
Are you serious about holding the 20k shares until 555.55? You mentioned that you are all in. I presume you will not be adding to your long position if VXX declines.
With VXX now at 44.55, you will make 24% if it rises to 55.55
However, if you were to buy the June 35 calls, you will only be paying around 1.00 for time premium, but you will make 100% if it hits 55.55
Even better, the June 35/50 call spread could now be bought for around 6.80 This would give you a breakeven price of 41.80 and max profit of 120% if it hits 50.
The sampling period may be too short to come to a valid conclusion, but it appears that the spread will narrow during rallies and widen during declines. It saw it move between 13 and close to 0.00 last week. The trade is to go long GOOGL and short GOOG when the gap is very narrow. I will be doing this with options. It will be a bit tricky to put on due to the quick price fluctuations and the bid/ask option spreads, but it could end up being a very profitable trade. I am almost certain that at least some of the big traders are already doing this spread trade.
For the past 6 trading days, the market has been alternating between 2 days down and 2 days up. If this trend continues, I will be buying VXX and UVXY calls during this 2 day rally. With VXX at 44.75, the June 35/50 call spread could be bought for around 7.50 which is midway between the strikes and a couple of dollars below the share price. My goal is to buy the VXX June 30/45 call spreads for less than 8.00
Take a look at the 5 day chart for last week comparing GOOG to GOOGL.
On Wed when the shares were rising, the spread narrowed.
On Thursday, when the selling began, the spread widened.
On Friday morning when the selling continued, the spread appeared to be the widest for the week when the panic selling was near it's peak.
When the stock is being sold off, especially during panic selling, it appears that the spread will widen. Is this because those who own both shares will most likely sell their GOOG shares before selling their GOOGL shares dues to the perception that they are of lesser value?
When the stock price is rising, it appears that the spread will narrow. Is this because of the perception that they are getting a bargain due to the discounted price of GOOG relative to GOOGL?
I found this good trade using the Jan2016 options.
Long 3.00 call / short 7.00 call for a debit of around 1.45
Max profit would be 2.55
Your effective price per share would be 4.45
This is what I have been saying since the split occurred. This morning at one point, the spread was $13.00
I had bought some GOOG calls a few days ago by mistake. I ended up converting them to call spreads.
Options is probably the cheapest way to play this spread.
Take a look at the 3 year chart for NUGT. Last year it had 2 reverse splits. There is a downward bias to the share price probably due to the use of options to maintain the 3x pricing. This would be similar to UVXY which declines because of contango.
Back in 2008, I was holding a long position in KERX with an average price of $7.
When the bad news came, it dropped below $1 and stayed there for over one year. Of course after I had sold it at this low price, it then proceeded to rise to a high of over $17.
So yes, they are capable of extreme price moves.
I noticed that Brian Kelly on Fast Money today had recommended UNG as a buy. He did not give any reasons for his recommendation.
Have you been shorting NUGT? Being 3X, it is capable of very large daily moves.
This is called a bull call spread. You are simultaneously long the 4 call and short the 7 call.
This is considered a very conservative strategy because your effective cost per share is only $5.55
This is also a play for capturing option time premium. In the event of some good news and the share price were to rally, you could close it out for an immediate profit. Also, in case of a price decline, you could close out your short call position for a profit and then just hold the long call position.
There are hundreds of different possible option strategies. Try doing calculations for some different strategies based upon risk/reward.
Here is a strategy I recommended to my friends for MNKD. This is intended to supplement to their long position.
Long Aug 4.00 call / Short Aug 7.00 call
With MNKD at 6.80, this spread could be bought for a debit of around 1.55
Your effective share price and breakeven price is 5.55
You will make 93% if share price is above 7.00 by exp.
Are you saying that the HF traders actually take a directional position, such as being net short?
I thought their advantage is just being able to front run the orders.