Butterfly on CCU April

Discussion in 'Options' started by lula, Mar 23, 2008.

  1. lula


    I am new to options and I have a question to the more experienced traders.

    I would like to put on a Butterfly on CCU because the IV is very high now. It is not suere that the buy out deal (announced since the last year) will happen at the end of the next week. In the news it sounds like they are not going to make it for march, maybe in april.
    My idea is a butterfly , bearish:

    April 08 PUT 15
    April 08 PUT 27,50 (sell)
    April 08 PUT 40

    A contract for 30 $

    My questions:

    In case they are going to make the deal, is IV decreasing quikly afterward? And in a situation like now (bearish trend) are prices going up stronlìgly after the deal?
    Myself I think prices want get much higher then 40

    In case they are not making the deal until the end of april should IV drop in the main time and prices too?

    I hope somebody understand what I mean.
  2. cszulc


    Graph at expiration

    Buy-out offer is $39.20, so you'd be out $160 if its approved by April expiration. Nice spread if you don't think its coming through soon.
  3. cszulc


    This might work better.

    Short 32.50/32.50 Straddle for $7.90 credit. Works great because you're shorting the high volatility.
  4. cszulc


    Nice trade OP. Thanks for the tip!

    Put on 1 of these for $2.35 debit, and should be worth $4.00 or so as the deal is rumored that it isn't going to go through.
  5. lula


    Tank you for your avice. I avoid to sell short without any covering, because of margin and lak of experience. I didn't put on The butterfly. Such a pitty!
  6. cszulc


    Here's another chance. Limited risk, limited profit. Buy-out offer is still $39.20, although the banks don't want it to happen still. The IV on these options is high enough to make this trade worthwhile.

    It goes out towards July though, which to me is the only problem.

    Long 15 Put
    Short 30 Put
    Long 45 Put

    All in July expiration.

    Max loss would be $160.00 on the upside (won't go past buy-out offer, unless raised), and max loss is $740 on the downside. Max profit is achieved at $30 per share, of $755 profit.
  7. cszulc


    This might be even better:

    Change the strikes up to 22.50/32.50/42.50 and you get max profit of $690, profit of $25 if deal goes through, and lower break-even is $25.56, around or lower than the 52week low.

    I'll be putting this one on tomorrow depending on pricing.
  8. cszulc


    Trade worked again! CCU has been turning out to be a great trade.

    Did the above 22.5/32.5/42.5 July butterfly for $3.00 debit, sold all 20 of them today for $6.60.

    Good job and thanks for the tip!
  9. Awesome thread guys. How did you find out about ccu?

    I know this is off topic but if we are talking about butterflies what do you guys think about buying a may 29/30/31 call butterfly in msft?

    Total cost of about $43 while total profit of about $57. I know probably not the greatest R/R trade but it looks like its a sure fire thing that we will be recieving a profit on the trade come expiration.

  10. cszulc


    Well, the original CCU trade for the April expiration was found by the OP, who unfortantely did not put the trade in. I did but only with one contract.

    I use the Options Analysis screen at the top of EliteTrader, and saw CCU pop up as a high-vol vs. historical, so I modeled some additional trades (like the one in April) and it came up with a great, high-prob trade. I did 20 of them and since volatility got crushed the past two days (which ultimately helps the butterfly), the spread went more than doubled.

    About the MSFT trade, your break-evens would be $29.40 and $30.60 (if purchased at $0.40), which isn't that great IMO. The $27/$30/$33 looks better if you do expect a tight range, but the risk is a little more than you want (break-evens about $0.15 wider).
    #10     May 13, 2008