Here’s a trade that makes sense to me.
MF Global (MF) will either fail or it will not. No one knows what’s going to happen, except for the insiders. I am not an insider. I am a passive investor who can, however, make money here. It doesn’t matter if I don’t have insider information.
I have sold March 2012 $1 puts for 50 cents and I have bought November 2011 $1 puts for 35 cents. If MF fails and the equity goes to zero, I will make $15 per contract (before commissions). If MF does not fail, I assume the puts I bought will be worthless and the puts I sold will also be worthless. I will still make $15 per contract.
Am I missing something? Obviously there’s a date mismatch. But it seems obvious to me that if MF fails it will take less than a month. If this were a hold ‘em hand, I’d have the nuts on after the flop (a flush maybe). Still have to see the turn and the river, but those would be unlikely to derail me. This trade is not guaranteed because there are some unknowns. But I like the odds.
Please do your own thinking before following me in this trade.