Because every other set up would have cost money. Check out the 12.50 calls/puts DHQ AV & DHQ MV at the same time...approximately 1000 of each.
How do you know any of the set-ups? Maybe there were none. Maybe someone sold puts and someone else bought calls.
This is what I'm trying to understand. I'm just a little dog with an internet connect and a few nickles to rub together.
You should stay away from all this "big time" nonsense. It's just silly game playing, and there's no psychological pay-off in doing it. Something that's never mentioned in investing is the need to get taste from one's investments. Would you eat food that had no taste based on its nutritious benefit only?
Wouldn't the long calls protect you?
Won't protect you from a broker's maintenance call on the shorted stock and shorted put. I assume that you know the margin rules on these kinds of transactions.
If it does rise to 35 it will only be after the 'event' and then the premiums will plummet to intrinsic value.
I was trying to point out that the capital encumbered could balloon on you. If you don't have it, your broker would have to bust the spread and cover. In the sp[read case you've laid out that isn't too bad, but brokers often won't pull out at optimal, spread preserving times during the trade day, but at random, spread contracting times. This can be aggravated because your broker's floor rep shows up in the crowd trying to cover or dump 1,000 contracts. Can't be done all at once without getting back away prices, so the rep tries to execute say, 300. Then the crowd smells blood in the water, and they back away.
Hide in a priori?
I don't know what that is.
You said it yourself, "won't the calls protect you" . When you strike a large spread you have to take it to term because the scale is such that trying to exit in pieces shows your hand. Usually, on expiration you exercise ITMs and cover or sell the common going market. Those kinds of transactions don't "leave you in Mexico".
But what I do know is that the Phase III trial results are going to be released before my January expiry so everything else being equal I should be able to pocket the difference of .43 cents by letting everything expire.
The P3 info doesn't pin the stock necessarily. I haven't said this spread won't work. It is likely to work, but the problem with it and all such devices is they try to get a good return without risk. You have to go where perceived risk is fairly large, but where you can conceive of a constructive outcome, and where others have doubt, if you want meaningful cap gains. It would take many years of hard experience to become convinced of the validity of this claim. That's why I suggested taking a stance ON the P3 info, one way or the other, rather than REGARDLESS OF, and trade your way out of a bad guess.
If it goes to 35 on that date or zero it shouldn't matter, because the puts are WAY too expensive vs.
You're saying that the market isn't efficient here and that you know more than all the players(who, in fact, actually know nothing). What you have to understand is that markets reflect truth without any of the individuals in the market knowing a thing. Don't feel bad. This phenomenon, called the "invisible hand", has most university econ professors totally baffled. That's why they prefer price controlled markets. Besides, I don't think the puts are too expensive. This stock looks like it could tank without the P3 data.
It is why I'm so determined that this set up is PERFECT.
Uh oh. You have to look for things that aren't perfect, things that are uncomfortable, because otherwise others will be trying to exploit the apparent potential too, and in their attempts they cause things to occur as seen in your perception that the puts are overvalued. Mostly, you have to seek risk, not avoid it. It is an axiomatic fact that risk is proportional to return. Are you trying to navigate around axiomatic truth? If so, good luck.
Since nothing is to good too be true I'm looking for the holes in my logic.
The hole is located inside the hole where you can't see it.
The only caveats that I see is that I have to be on the floor to make this risk free
No. On the floor would only give you a better chance to make the spread worthwhile. Consider this. Option MMs don't engage in such strategies, that is, the ones who last. A good MM eventually realizes that keeping it simple brings home the bacon. |
