Any comments on this GM butterfly

Discussion in 'Options' started by arl, Feb 19, 2006.

  1. They put up very little capital[$500k] to play the position. It's not large in terms of debit exposure and has a large expectancy based upon the current share price. It earns >$5mm at expiration with GM trading here at $20; a 10-bagger. The fly doesn't bleed deltas on the upside due to the limited gammas as a function of the long hold. Also, it begins to earn as it approaches neutrality. Limited upside risk, homerun potential.

    I imagine it's a standalone position as butterfles are terrible hedges. It's a poor hedge into a liquidation as the common would blow through 15 and they would accumulate long deltas.
     
    #11     Feb 24, 2006
  2. Why would someone WANT to trade against the bet? It is just an option play. $500K on a GM position given its market cap and option volume is not really huge in the grand scheme of things. I would think it was no skin off anyone's back if this was put on. The MM is gonna hedge it immediately anyway.

     
    #12     Feb 24, 2006
  3. wabrew

    wabrew

    It's a tax trade - some large B/D is the other side. Their customer has a huge capital gain and will wait till Dec 29th and then take loss on losing side of trade by stepping into a straddle.

    I remember there were monster sized option trades on YHOO in the 250' -350's back in the heyday.

    Has there been any legislation that has D K 'd this kind of trade for tax purposes?
     
    #13     Feb 24, 2006