Spread Adjustments – 3/2/11

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Thursday Trades

Tuesday Trades

Friday Trades

Wednesday Trades

 

Tuesday Trades

 

PG Butterfly Arbitrage

Goal:
Convert April PG position to risk-less butterfly arbitrage. Profit from APR 67.5 CALLS not included in credit.

Holding:
+1 APR 62.5 CALL @ 1.85
-1 APR 65 CALL @ 0.85
+5 APR 67.5 CALL @ 0.17

Zero-Risk, Zero-Profit Position:
1.85 + 0.17 = 2.02
2.02 – .85 = 1.17

Trades:
-1 APR 65 @ >= 1.17 (current mkt val = 1.29)
-4 APR 67.5 @ 0.42 (current mkt val)

[Click image to view at full size]

Since the zero-profit position comes from the sale of 1 APR 65 CALL @ 1.17 then anything above that locks in profit at $1/cent above 1.17.

The maximum profit at expiration is $250 if the underlying closes at 65 on 4/15/11 and the 65 CALL is sold at 1.17.

Profit will be higher from the sale of the 4 APR 67.5 CALLS currently held but this is not included in the calculation for the arb.

Since the spread has been “legged” into starting from the long side, the higher the underlying goes before the CALL is sold the higher the profit is that gets locked in.

NOTE: The simulation uses the closing market value for the short APR 65 CALL. This position has no risk of loss to expiration.

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Goal:
Maximize profit in butterfly arb using unrealized profit in APR 67.5 CALLS and APR 62.5 CALLS.

Holding:
+1 APR 62.5 CALL @ 1.85
-1 APR 65 CALL @ 0.85
+5 APR 67.5 CALL @ 0.17

Trades (closing mkt value used for simulation on all trades):
+1 PG APR 62.5 CALL @ 2.90
-3 PG APR 65 CALLS @ 1.29
-3 PG APR 67.5 CALLS @ 0.42

Increase in Buying Power:
1.29 * 3 = 3.87
0.42 * 3 = 1.26
3.87 + 1.26 = 5.13 credit
5.13 – 2.9 debit = 2.23 credit (increase in buying power)

Final Position:
+2 PG APR 62.5 CALLS @ 2.375 (averaged w/mkt value)
-4 PG APR 65 CALLS @ @ 1.18 (averaged w/mkt value)
+2 PG APR 67.5 CALLS @ 0.17 (profit not included)

Maximum Risk of Loss:
2.375 * 2 = 4.75 debit
1.18 * 4 = 4.72 credit
0.17 * 2 = 0.34 debit
3 * (0.42 – 0.17) = 0.75 credit (profit from APR 67.5 CALLS)

-4.75 + 4.72 – 0.34 + 0.75 = 0.38 credit (maximum loss is a credit; therefore risk-less)

Maximum profit potential is $538 on 2/4/2 vs $262 on 1/2/1 butterfly if underlying closes at 65 on 4/15/11.

[Click image to view at full size]

Monday Trades

IN
AIG – AUG 48 CALLS @ 2.59
BAC – AUG 16 CALLS @ 0.87
CME (hedge) – MAR 280 PUTS @ 3.40
DG – MAY 30 CALLS @ 0.90
EXPE (added) – APR 28 CALLS @ 0.45
FFIV (hedge) – APR 105 PUTS @ 2.25
MCD (added) – MAR 75 CALLS @ 0.67

OUT (-1.545)
AMZN (covered short) – APR 210 CALLS @ 0.73 (+0.10)
CME (part) – MAR 320 CALLS @ 3.30 (-2.833)
PG (part) – APR 62.5 CALLS @ 2.73 (+1.02)
PG (part) – APR 67.5 CALLS @ 0.428 (+0.258)
ROVI (part) – MAR 65 CALLS @ 3.36 (+0.91)
VIX (part) – MAR 20 CALLS @ 1.30 (-1.00)

SCALP (-0.091)
FFIV (in) – MAR 145 CALLS @ 1.521
FFIV (in short) – MAR 150 CALLS @ 1.05
FFIV (out part) – MAR 145 CALLS @ 1.25 (-0.271)
ROVI (in) – MAR 70 CALLS @ 1.52
ROVI (out part) – MAR 70 CALLS @ 1.70 (+0.18)

Friday Trades

IN
AMZN – APR 210 CALLS @ 1.05
DAL – MAR 11 PUTS @ 0.41
EXPE – APR 28 CALLS @ 0.40
GLD – MAR 135 CALLS @ 1.81
IEF – SEP 88 PUTS @ 1.75
PGshort APR 65 CALLS @ 0.85
PGbutterfly JUL 60/65/70 CALLS @ 1.81
SPY – FEB 129 PUTS @ 0.86

OUT (+0.892)
AMZN – MAR 145 PUTS @ 0.44 (-0.21)
FCX (covered short) – MAY 50 PUTS @ 2.30 (+0.33)
FRXvertical MAR 33/34 CALLS @ 0.45 (+0.25)
ICE – MAR 120 CALLS @ 3.90 (-0.385)
PG (part) – APR 62.5 CALLS @ 2.13 (+0.467)
ROVI (part) – MAR 65 CALLS @ 2.95 (+0.48)
SDS – MAR 23 CALLS @ 0.55 (-0.04)

Thursday Trades

IN
AMZN – APR 205 CALLS @ 1.05
AMZN – MAR 145 PUTS @ 0.65
CBOE – SEP 28 CALLS @ 0.80
PG – APR 62.5 CALLS @ 1.85
CBOEbutterfly MAR 22/24/26 @ 0.71
EXPE – APR 28 CALLS @ 0.50
FCXshort MAY 50 PUT @ 2.63
UUPshort SEP 24 CALLS @ 0.28

OUT (+2.667)
DBO – MAR 30 CALLS @ 0.60 (-0.15)
MCD (part) – MAR 75 CALLS @ 0.90 (+0.15)
ROVI (part) – MAR 65 CALLS @ 2.65 (+0.167)
ICE (covered short) – MAR 125 CALLS @ 2.15 (+0.28)
ICEvertical MAR 120/125 CALLS @ 1.82 (-0.086)

HEDGE
SDS – MAR 23 CALLS @ 0.59

OTHER
Reduced size of CME vertical and converted part to 300/310/320 butterfly then took part profit on 330 short leg of 320/330 vertical

CME (OUT part) – vertical MAR 320/330 CALLS @ 1.62 (-0.045)
1) CME (IN) – vertical MAR 300/310 CALLS @ 4.05
2) CME (IN) – short MAR 310 CALLS @ 6.20
3) CME (OUT covered part short) – MAR 330 CALLS @ 2.05 (+2.35)

orignal position: 320 + (320/330 vertical) = 2*+320 & -330
1: 300/310 vertical = +300 & -310
2: -310
3: +330

Two positions: 320/330 ratio vertical (net long) & 300/310/320 butterfly