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closed Positions
KRE: 03.26.20 – 05.15.20
ETF | Banking Fund | Status: Closed
Adjustment #2
View original trade
04.09.20
The market rallies yet again into the final day of trading this week. Tomorrow is a holiday so the markets will be closed... so sad.XX Anyways, KRE is also up a ton giving me a great opportunity. By my and selling another above my remaining I was able to eliminate my risk in this trade entirely. I've collected a total of $0.20 in credit after all of my adjustments... That $0.20 is now my minimum profit! This set up can be a challenge to conceptualize, so I'll break it down in detail below the risk profile...
Risk Profile:
Another way to think about this is by breaking it down into four separate
- 1
- 1
- 1
- 1
Let's explore what would happen in each scenario at the end of Remember that I've collected a total of $0.20 for this entire position.
Share price below $29
If the share price lands below $29, both put spreads would be fully and cancel each other out... The short spread will cost a $1 debit to close and the long put spread will be sold for $1 – a net $0 transaction. Both call spreads will be and expire completely worthless making no difference. All that will remain is my $0.20 credit as profit.
Share price between $29 and $30
If the share price lands between $29 and $30, the short put spread will be partially ITM. I will be able to buy it back for $30 less the share price (which would cost less than $1). The long put spread will be full ITM and I will be able to sell if for $1. The two transactions will leave a surplus less than $1 which I will be able to keep as profit along with my original $0.20. Both call spreads will expire worthless and make no difference.
Share Price Lands Exactly at $30
If the share price pins the $30 strike, my short put spread will be fully OTM and will be worthless. My long put spread will be full ITM and I will be able to sell it for $1. I will keep my original $0.20 plus the dollar from my long put spread for a total of $1.20 profit. Both call spreads expire worthless and make no difference.
Share Price Lands Between $30 and $31
If the share price pins lands between $30 and $31, my short put spread will be fully OTM and expire worthless. My long put spread will be partially ITM and I will be able to sell it for the share price less $30, resulting in a credit less than $1. I will be able to keep that credit plus my original $0.20 as profit. The calls would be worthless and make no difference.
Share Price Lands Between $31 and $34
If the share price pins lands between $31 and $34, all options will be OTM and expire worthless. I will be left with my $0.20 as profit.
Share Price Lands Between $34 and $36
If the share price pins lands between $34 and $36, my long call spread will be partially ITM and I will be able to sell it for the share price less $34 resulting in a credit less than $2. That credit, plus my original $0.20, will be my profit. The short call spread as well as the both put spreads will be full OTM and expire worthless, making no difference to my
Share Price Lands Exactly at $36
If the share price pins the $36 strike, my long call spread will be fully ITM and can be sold for $2. My short call spread will be full OTM and expire worthless along with both put spreads. The $2 I received for my long call spread, plus the original $0.20, will be my profit ($2.20).
Share Price Lands Between $36 and $38
If the share price lands between $36 and $38, my long call spread will be fully ITM and I will be able to sell it for $2. The short call spread will be partially ITM and I will have to pay the share price, less $38 to close it (a less than $2 transaction). Both transactions would result in a net credit which I will keep as profit, along with my original $0.20. All of the put spreads will expire worthless and make no difference.
Share Price Lands Above $38
If the share price lands above $38, both my call spreads will be fully ITM and cancel each other out. I will be able to sell my long call spread for $2, but will have to pay $2 to close my short call spread. The puts will all expire worthless and I will be left with only my original $0.20 as profit.
Phew! I think that about covers each scenario. Sorry for the complexity – hopefully my little breakdown will help you understand what's going on. It's pretty cool that I now have the opportunity to make a couple hundred bucks completely risk free... It's just the result of extreme market conditions. The tradeoff for eliminating my risk is a lower maximum profit potential – now $2.20 instead of $3.16. With that in mind, I'm going to lower my profit target a bit to reflect the new circumstances. I'll now target around $1.10 which is 50% of the max potential.
I might be able to close out of this early if the share price remains between the two short strikes (30 and 36). If decays quickly in the outer options, and holds up at the 31 and 34 strikes, I might be able to see a nice profit without having to wait until expiration. Either way, with no risk left, there's no reason to fret over this position. I can move onto other things for a while. I'm excited to see how this pans out!
Strategy: Close Short Puts, Sell 30/31 Put Ratio
btc 2 may 15 26 puts
sto 2 may 15 30 puts
bto 1 may 15 31 put
Fill Price: $0.16 debit
Position Analysis
U/L Price: $35.97
IV: 64.5%
IVR: 34.3
Liquidity: 4/4
Position: MAY 15 29/30, 31/34/36/38 Risk-Free Double Butterfly
POP: 99.99%
Cost Basis: $0.20
Risk: Undefined
BPR: $0
Max Profit: $220
Max Loss: $0
Target P/L: $1.10
Extrinsic Value: $167
Net Delta: -2.04
Net Theta: 0.334