TLRY Options

Discussion in 'Options' started by FSU, Sep 12, 2018.

  1. FSU

    FSU

    Just crazy how out of whack the options are in TLRY because of the cost to short the stock. No one should be buying this stock, if they want to get long, buy the calls. Otherwise you are giving a huge amount of money to your clearing firm.

    Today you could buy the March 19 80 calls for 1 dollar over parity. So with the stock at 105, you could buy them for 26. So think of this, if the stock goes up, you will make the same as if you bought the stock (except for the premium of 1 over parity you paid) but if it goes down to zero, you can only lose 26, instead of 105 and you have 6 months.

    If you want to hold the stock long term (to the March expiration), you could by this call for 26, and sell the same strike put for 29. So you are effectively buying the stock at 77, instead of the current price of 105 and you save the cost of carry of being long the stock.
     
  2. Or, short the put and buy the call (ATM). You can lock a huge hard to borrow for the duration of your contacts (even when hard to borrow grounds itself again). Of course, then you have the full exposure of being long something that seems to be hitting peak news exposure. But nevertheless, it's financially irresponsible to just be long this stock unless you're capturing most of that hard to borrow.
     
    Leopard9, Sig and Reformed Trader like this.
  3. Leopard9

    Leopard9

    Thanks for the tips guys. Never traded options. If you have the patience please keep posting your ideas here!
     
  4. Daal

    Daal

    Before the close I checked the Sep 21 options and it seems that the synthetic long was paying $7-8 a share for the long side. I suppose that is the long 'thesis' in the stock. That the short squeeze will continue and you can get paid to bet on it, when this reverses it will be nasty but most commentators talk about revenues and other nonsense (like Citron) when the fundamentals that matter is this credit, the buyins, Reg Sho, etc, etc
     
    Reformed Trader likes this.
  5. qwerty156

    qwerty156

    I actually was able to put in an a pure arbitrage at current prices for TLRY. If you see the option chain, put call parity is actually violated due to the high borrow rate for the stock (NTM options imply forwards near ~$70). You can short NTM and OTM puts, while using deep ITM calls/credit call spreads to hedge your exposure.

    Obviously, the bid-ask spreads are high for the stock, but given the volatility, you may be able to leg-in and out. I personally would reccomend legging into the bear call spreads and then selling your puts.

    Here's the trade and the payoffs at current prices:

    upload_2018-9-15_11-11-53.png

    This lets me express a bearish view on the stock when the lock up expires roughly near december 2018, while still giving me upside if the stock rockets or stays near its current price.

    Would appreciate inputs from more experienced members on this trade
     
  6. elt894

    elt894

    This isn't a pure arb. Your risk is getting assigned on the 45 and 50 calls. Those strikes still have some extrinsic value, so you won't get assigned immediately, but you should expect it if TLRY goes higher, vol drops, or theta decays. At that point you'll have to pay borrow fees if you want to keep the short position open.

    A simpler trade where you can see this effect is the March 50/100 box spreads are going for 70-80.
     
    Reformed Trader likes this.
  7. FSU

    FSU

    Actually those calls are trading with no intrinsic value. You will get assigned on them if you are short them.
     
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  8. elt894

    elt894

    @FSU is right. IB's options window is showing me the wrong the closing price for the stock.
     
  9. qwerty156

    qwerty156

    Thanks a lot for the input! I really appreciate it. I thought that since I was long the 70 and 65 strike calls, I can exercise them as well if I get assigned. Since I didn't really pay much over intrinsic value for my entry, I don't lose money right?

    If this is true, then my real risk would be call assignation, forcing me to excersice my closer to maturity long calls, and have an unhedged put position?

    How big do you think the risk of being assigned is?

    Also, do you think there is a chance the calls stop trading below intrinsic value? What happens if the stock declines?

    Sorry for all the questions, really appreciate your input. Would also appreciate your input @FSU
     
  10. qwerty156

    qwerty156

    Additionally, one question I had is that if vol drops, I should earn money on the short put side of the trade, right?
     
    #10     Sep 15, 2018