How a 'tripo' works (short version)...
The purchaser of a tripo will buy it for less than the strike, and will capture this amount, plus any dividends, less the cost of carry, and cost of execution, at expiry. If for some reason the buyer wants to 'buy' the dividend or own the underlying at 'no' risk (there is a risk which I'll explain in a minute), he might be prepared to pay enough to make it attractive for a seller to take the other side. The risk comes if the underlying closes at the strike at expiry--does the holder exercise his puts and risk being called on his short calls? This happens more than you might expect.
Well, if the last two day's action didn't rattle your fillings, you weren't paying attention. Thank god Ballard finally did break down out of its pennant. At one point yesterday it was down $27 in two days, enough for me to recover from all the premium I ate the last three weeks. Hey, breaking even sure beats losing. Volatility spiked as bottom-pickers showed up. (64,57) ABX continued to slide as gold tested the $292 support level. Vols inched up a snick from US arbitrage. (40,39) Bell reached the mid-64 level before a dead-cat bounce to 65.40. Still good two-way trading. (25,25.5)
If my numbers are right, yesterday was my best single day since a certain Monday in 1987...too bad most of just recouped losses. Trading options, and being on the right side, when the market is gyrating wildly can be a sweet feeling.
I'm still a little short across the board, but a rally attempt here wouldn't surprise me.
Happy trading.
Porter |
