urgent - What am I missing on this spread??

Discussion in 'Options' started by DeltaSpread, Sep 1, 2011.

  1. Underlying = YRCW

    pending meeting that could see massive dilution on 9/16.

    Real time live quotes for October 2011 options

    .50 strike Calls bid = .21
    .50 strike Puts bid = .39

    $1.00 strike Calls ask = .06

    You sell both the put & call .50 strikes and also buy the $1.00 call for a total net credit of .54.

    Worst case scenario on either side is 50 cents loss but you have 54 cents of premium captured. Are the 4 cents freebie?
  2. I should have been quicker. Both bids on put/calls have stepped down a penny but the $1.00 call ask stayed same. Now the total net capture is 52 cents.
  3. spindr0


    Not missing anything but you may have as many as 6 commissions so you need low commish rate.
  4. FSU


    What you are missing is that this is a very hard to borrow stock. If you sell these calls, there is a good chance you will be assigned (they are trading with no premium). What I like better is selling the .50/1.00 Oct put spread for .48. Only risking .02.
  5. Not familiar with the settlement procedures, but couldn't he just exercise his 1.00 call in order to deliver shares if assigned? That way he stills collects .54 on the .50 risk in the put...i'm probably missing something...
  6. FSU


    With the stock at .75, the 1 calls that he is buying are out of the money. If he exercised them, he would be buying the stock at 1.
  7. ha, holy sht i think i may have early onset dementia. scary
  8. FSU


    Really interesting stock to look at. Thanks to Deltahedge for posting.

    It looks like the options are pricing the stock at less than 10cents after the Sept 16 meeting. High volume on the 1 and .50 puts so I tend to believe that is were it is heading. If this is the case, why the heck is it trading .75 now? Will be fun to watch.
  9. the vol on this thing is crazy!
  10. thanks for the free money
    #10     Sep 1, 2011