LABU Ratio Spread
Seeking Alpha Analyst Since 2012
- 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.
Analyst's Disclosure: I am/we are long GILD.
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