The Shorting of Frauds, Overhyped and Bankrupt Stocks Journal

Discussion in 'Journals' started by Daal, Jun 8, 2012.

  1. Undervalued at $40/share, not so much so at the $120/share that Ackman was buying in his spinoff.
     
    #31     Jun 20, 2012
  2. Daal

    Daal

    What do you think of doing this strategy in the longer-term puts(1 year exp or more)?Usually there is a quite a lot of premium in them which makes me reluctant to buy them
     
    #32     Jun 21, 2012
  3. No, the 1275/1300 back-spread for June 2013 is $90 debit. I would roll the hedge monthly. There is no gamma a year out.
     
    #33     Jun 21, 2012
  4. Daal

    Daal

    You mean the back spread in a 2-1 ratio?
     
    #34     Jun 21, 2012
  5. Yeah, long two 1275s, short one 1300. You can ratio it any way you like, but as you increase the shorts it becomes a bull-vertical, which you certainly don't want.
     
    #35     Jun 21, 2012
  6. Would it make sense to roll the hedge early if spot were trading ~ 1275 - 1285 with two weeks until expiry? Thereby trying to avoid the worst case of a 1275 pin and using some of the MTM gains against next month's hedge which will now be considerably more expensive.
     
    #36     Jun 21, 2012
  7. The long backspread will look great anywhere between the strikes with weeks to go. Maybe structure it out to 60-days. Beyond that will be costly.
     
    #37     Jun 21, 2012
  8. Daal

    Daal

    Let me ask you this, do you think that IV are consistently too high during single stock panics?For instance, if someone consistently shorted puts everytime IV had a really big spike, assuming they had good fills, would that make money on avg?No delta hedging would be made

    I ask this because sometimes I look at put prices and I just can't buy them as they don't offer good odds, but that puts me in a contradiction because if I can't buy them its illogical not to be selling them(assuming you can get filled at that price or close to it)
     
    #38     Jun 21, 2012
  9. Yeah, and there are ways to stay risk-defined in short vol and still earn on declines. A skew fly is neutral to a spot on the smile that is kinked. It's a big topic. If you want to sell puts into the events then go deep OTM in index and go small.
     
    #39     Jun 21, 2012
  10. Daal

    Daal

    What about the idea of playing the market maker?Shorting the options then delta hedging. The MM might have some advantages over retail but it could be that during times of high panic the IV edge can help cover that

    This strategy could be combined with a small directional bias in order to generate an extra return if you know the stock well
     
    #40     Jun 21, 2012