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Post by tbone on Jun 4, 2015 10:55:33 GMT -5
Sell stock and replace with Aug expiration synthetic long (sell put/ buy call). Improve basis in shares by about 90 cents. .90/5.85= .1538 for less than 3 months. That is 60% annualized. Free money for the taking if you don't plan to sell before third Friday in Aug anyway. Best in IRA account since no tax consequences and holding period issues.
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Post by tbone on Jun 5, 2015 9:29:20 GMT -5
Today you can likely improve basis by $1.00. sell Aug 10 put/ buy Aug 10 call (collect 5.10) and sell stock for $5.90. You have $11 and will be back in stock at $10.
Some other threads here calling this illegal. Don't know where that comes from. Maybe because it seems too good to be true. Anyway, my two cents are logged.
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Post by liane on Jun 5, 2015 9:34:08 GMT -5
It's illegal (other than for MM) if you naked short sell the stock. If you own the stock and do this it's OK.
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Post by tbone on Jun 5, 2015 9:43:55 GMT -5
Thanks for the clarification. Not sure why anyone holding long term, especially in a retirement account, would not take advantage of this. I have reduced basis a number of times over the years as we approached binary events and the put premiums went insane. Do this enough times and you can get the basis down to nothing.  |
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Post by esstan2001 on Jun 5, 2015 9:45:08 GMT -5
It's illegal (other than for MM) if you naked short sell the stock. If you own the stock and do this it's OK. If your broker locates the shares, and you borrow the stock (paying interest on loaned shares) it is OK- this is non-naked shorting. |
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Post by tbone on Jun 5, 2015 9:48:14 GMT -5
It's illegal (other than for MM) if you naked short sell the stock. If you own the stock and do this it's OK. If your broker locates the shares, and you borrow the stock (paying him interest on loaned shares) it is OK- this is non-naked shorting. But then you have the unknown of the carry cost for the next 3 months. With the cost to borrow at 40-50% right now (and free to move higher) that seems like a risky play, no sure thing there. |
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Post by Deleted on Jun 5, 2015 10:14:50 GMT -5
If your broker locates the shares, and you borrow the stock (paying him interest on loaned shares) it is OK- this is non-naked shorting. But then you have the unknown of the carry cost for the next 3 months. With the cost to borrow at 40-50% right now (and free to move higher) that seems like a risky play, no sure thing there. exactly. those trades are for complicated traders..small retail people can keep it simple and sleep well @ night |
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Post by goodby1 on Jun 5, 2015 13:07:55 GMT -5
OK... I am approved to trade options on my etrade account and I own quite a few shares. Explain this to me simply please...
What options do I buy/sell/write etc. if I want to keep my shares but make $$ for sitting on them like those over at Fidelity loaning them out?
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Post by patryn on Jun 5, 2015 13:17:08 GMT -5
As Tbone mentioned, if you are not worried about the tax consequences, you can currently sell the stock for $6.15, sell August $10 puts for $5, and buy August $10 calls for pennies. (I didn't get a chance to look at the option spread yet). You will have $5 in hand per share from the put and $6.15 per share from selling it and be able to buy back in the stock for $10. You can then take that $11 and do something else with it until August if you are feeling really frisky as well. Your risk is that the price falls significantly (like to $4), in which case you are still on the hook to buy the shares at $10 and you will have lost money, but that's the same risk that shareholders loaning out their shares take.
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Post by goodby1 on Jun 5, 2015 14:18:54 GMT -5
OK... patryn... This is exactly what I did. Sold August 10 puts for something like $4.80 and bought Aug 10 calls for pennies. Let's see how this plays out.
Did it in my IRA and sold a portion of my shares of MNKD to fund it. No tax consequences. So if the price doesn't drop precipitously I will make... at least 10% on the spread yes?
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Post by patryn on Jun 5, 2015 15:02:23 GMT -5
Yes if the price stays the same then you will have made 10% in two months annualized out to 60%. If price goes up, then you will still gain all the appreciation that you would have if you held the shares, and if the price goes down, then you will lose whatever you were going to lose by holding the shares.
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Post by patryn on Jun 5, 2015 16:53:44 GMT -5
I should add that the reason you are getting the premium is because you lose quite a bit of flexibility over the next two months. If you were to be able to time things right, then you could sell at the top and buy back on pullbacks especially if you believe that the next two months will not have substantial enough subscription numbers to move the needle permanently, but that the volatility will be worth doing short term trades. As most people aren't able to time the market very well, this is probably not a big concern, but it is something to remember that you are locked into the shares until August.
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Post by afrizzle on Jun 6, 2015 7:28:48 GMT -5
As Tbone mentioned, if you are not worried about the tax consequences, you can currently sell the stock for $6.15, sell August $10 puts for $5, and buy August $10 calls for pennies. (I didn't get a chance to look at the option spread yet). You will have $5 in hand per share from the put and $6.15 per share from selling it and be able to buy back in the stock for $10. You can then take that $11 and do something else with it until August if you are feeling really frisky as well. Your risk is that the price falls significantly (like to $4), in which case you are still on the hook to buy the shares at $10 and you will have lost money, but that's the same risk that shareholders loaning out their shares take.Thanks for posting this it heiped me understand the strategy. Is this really the same risk? In the options scenario don't you have to act at expiration but in the loaning scenario you don't have to unwind on a fixed date and can just let it ride unless/until the borrower doesn't want the shares any longer or you decide you want them back I'm asking because I've never made any options plays (conservative long) but am interested in learning |
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Post by patryn on Jun 6, 2015 8:10:41 GMT -5
. Your risk is that the price falls significantly (like to $4), in which case you are still on the hook to buy the shares at $10 and you will have lost money, but that's the same risk that shareholders loaning out their shares take.Thanks for posting this it heiped me understand the strategy. Is this really the same risk? In the options scenario don't you have to act at expiration but in the loaning scenario you don't have to unwind on a fixed date and can just let it ride unless/until the borrower doesn't want the shares any longer or you decide you want them back I'm asking because I've never made any options plays (conservative long) but am interested in learning It isn't exactly the same situation hence why I posted the clarification. You don't actually have as much flexibility to do short term trades because you commit to buying back the shares in August at $10 and you dont have the ability to recall the voting rights to the shares until then. Specifically lets say that a true short squeeze happens and the price skyrockets to $15 a share in July. in this wishful thinking scenario, if I were holding the shares, I could sell them and buy them back a week later when the price falls again to say $8 once the irrational exuberance fades. I suppose that if I were being completely truthful you could still do this in this scenario by shorting the stock, but then you incur the loan payment as well as the infinite downside risk of shorting so we won't dig too deeply into that rabbit hole. The risk however remains the same as if you owned the shares. Lets walk through 4 scenarios. 1. Price stays the same at 6ish. You collected 11ish now and in August you pay 10 on your put option and your call option at 10 expires worthlessly. You gained a dollar per share of premium and now hold the same number of shares as before at the same value as before. 2. Price drops 50% to 3ish. You collected 11ish now and in August you pay 10 on your put option and your call option at 10 expires worthlessly. You gained a dollar per share of premium and now hold the same number of shares as before at half the present value. You wish you hadn't done this and had sold at the high before the drop because your market timing is perfect. 3. Price rises 50% to 9ish. You collected 11ish now and in August you pay 10 on your put option and your call option at 10 expires worthlessly. You gained a dollar per share of premium and now hold the same number of shares as before with increased value. You think you are a genius at this options trading thing. 4. Price rises 100% to 12ish. You collected 11ish now and in August that fool that paid you $5 for the put option allows the put to expire worthless. Your call option that you paid 2cents for is exercised at 10 and now you hold the same number of shares as before at double the value as today. You brag on the message boards and stocktwits about your prowess at hedging and financial instruments and your amazing annualized returns on this savior stock, drug, delivery system, 90 year old entrepreneur. Hope that helps and if you have any other questions please ask! |
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Post by tbone on Jun 6, 2015 14:30:05 GMT -5
As Tbone mentioned, if you are not worried about the tax consequences, you can currently sell the stock for $6.15, sell August $10 puts for $5, and buy August $10 calls for pennies. (I didn't get a chance to look at the option spread yet). You will have $5 in hand per share from the put and $6.15 per share from selling it and be able to buy back in the stock for $10. You can then take that $11 and do something else with it until August if you are feeling really frisky as well. Your risk is that the price falls significantly (like to $4), in which case you are still on the hook to buy the shares at $10 and you will have lost money, but that's the same risk that shareholders loaning out their shares take.Thanks for posting this it heiped me understand the strategy. Is this really the same risk? In the options scenario don't you have to act at expiration but in the loaning scenario you don't have to unwind on a fixed date and can just let it ride unless/until the borrower doesn't want the shares any longer or you decide you want them back I'm asking because I've never made any options plays (conservative long) but am interested in learning Afrizzle, To answer your question, you need do nothing at expiration in Aug. If price is under $10, shares will be sold to you automatically at $10 by the put holder. If price is above $10, your calls will auto execute. While this strategy does tie your hands a little, that could be a good thing if you have itchy sell finger. NOBODY can time the high and low. I don't care what they say. In addition, you can still sell by closing out both positions. If the put premium has continued to grow then you may have sacrificed a little by getting into the synthetic long. However, if share availability improves on a move higher then you may see put premiums come down and you would still have benefited from exchanging shares for the synthetic version. Hope this helps. |
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