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LABU Ratio Spread

Summary

Direxion Daily S&P Biotech Bull 3X Shares.

Double ratio spread.

Adjustment plans.

The strategy will test the integrity of option adjustments on this highly volatile derivative which also comes with rich premium.  LABU trades at $ 43.48 at the end of today's market. Assuming that the options were ordered right before the closing, here is the position:

Buy to open 5 contracts  1st Mar $43.00 Call at $5.5 each ( $ 2750 ).

Sell to open 5 contracts 1st Mar $50.00 Call at $2.6 each  ( $ 1300 ).

Buy to open 8 contracts 1st Mar $55.00 Call at $1.35 each  ( $ 1080 ). 

Buy to open 5 contracts 1st Mar $43.50 Put at $5.3 each  ( $ 2650 ). 

Buy to open 5 contracts 1st Mar $38.50 Put at $3.15 each  ( $ 1575 ). 

Buy to open 8 contracts 1st Mar $35.00 Put at $2.05 each  ( $ 1640 ). 

Total credit is $195 ( friction and trade costs are not included ).

The position will be at risk once the underlying approaches $55 or $35. In that case, an adjustment that include adding positive or negative delta to neutralize the short call or put respectively will be made. To fund the adjustment, a credit spread will be sold in the opposite side, either the same month or on next expiration month. 

 

Disclosure: I am/we are long GILD.