CYD - Enormous Multi Leg Bearish Spread

Discussion in 'Trading' started by livevol_ophir, Dec 30, 2009.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    The company averages 406 option contracts a day - with an hour to go in trading it has traded over 21,000 (that's not a typo).

    Essentially every contract went up in a three legged option trade.

    The trade was this:

    Sell 7005 Feb 17.5 calls @ 0.30
    Buy 7005 Feb 15 puts for 1.40
    Sell 7005 Feb 12.5 Puts @ 0.20

    Total outlay = 7005*100*(1.40 - 0.30 - 0.20) = $630,450.
    Max Gain = 7005*100*(40) + 0.30 + 0.20)= $1,120,800 when stock is 12.50 or lower.
    Max Loss. = Unlimited

    The bet is that the stock goes down to 12.5. A good way to analyze an "unorthodox" multi-leg option startegy is to break it up into two trades. Here's an easy way to look at this trade:

    (1) Buy the Feb 15/12.5 Put Spread
    (2) Sell Feb 15 Calls to pay for it

    The stock chart illustrates that the stock is at/near a high and may be what chartists call "toppy."

    You can see details, trades, prices, charts and payoff on my blog:
    http://livevol.blogspot.com/2009/12/china-yukai-cyd-multi-leg-bearish.html
     
  2. would be fun for someone to control the float and bring this up to 22.00
     
  3. Thanks for the info -- you blog looks good too.

    However, although 21,000 sounds like a lot of options, basically it amounts to a $½million'ish gamble on a company with $½billion'ish market cap -- not a big deal in the grand scheme of things.
     
  4. Yeah.

    It does make me wonder though if someone knows something or is planning something. I mean, could this person have some shares and sell them in small amounts but like at a panic level (i.e. market sells) to try trash the price, while then making $$$ on the options trade.

    Or, does someone have insider info they are about to head down in value?

    I have no idea. Will be interesting to watch though.
     
  5. A disarmingly honest remark.
     
  6. You mean "sell the Feb 17.5 calls to pay for it"
     
  7. See Ping Jiang, formerly of SAC. Basically, the entire equity derivatives team.
     
  8. Hmmm , what a weird trade. I don’t think they long 700K shares (they would off be better just selling 15 strike calls for 1.10) , so I agree with OP on bearish bias

    Yes, great blog
     
  9. They are not doing good so FAR.