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Just to be clear, you sold the box spreads, not purchased, right? If you purchased you'd be long the ITM calls.
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Feb 21, 2015 18:44
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Actually, at least one of your questions has an easy answer. The calls you wrote were exercised by the buyers because of the merger. An option to buy a stock that no longer exists is, as you'd expect, worthless, so the call buyers exercised the calls to buy the stock to tender it for the 17.75 + contingent rights. Why were your short shares bought-in? Same reason. The people who are long the shares have to control them free and clear to tender them.
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Feb 21, 2015 18:45
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Thanks for the info. This should clarify how I opened it:
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Feb 21, 2015 19:13
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What book can I read to understand what the gently caress you guys are talking about? I don't feel like this was covered in 4 Pillars.
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Feb 21, 2015 19:19
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Or better yet, someone make a post, explaining stuff.
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Feb 21, 2015 19:31
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RaoulDuke12 posted:What book can I read to understand what the gently caress you guys are talking about? I don't feel like this was covered in 4 Pillars. A box spread is a form of arbitrage. It involves buying synthetic long* and synthetic short* positions of the same security, in a way that nets a profit at expiration. Add the cost of the box to the difference in strike prices** to determine the value. Ie You received a +$5 credit on the box, and the strikes are -$4.95 apart: The box is worth 5 - 4.95 = $.05 , multiplied by the number of contracts and 100, with commissions and fees subtracted. Boxes should be always placed with a single limit order. Price changes in the underlying stock don't affect the box's value. An option assignment is when buyers of an option you sell exercise the option, forcing you to buy or sell stock at the strike price. If assigned before expiration, who the shares are assigned to is somewhat arbitrary. A buy-in is when your broker decides you're no longer allowed to short a stock with them. You automatically buy it at market price. If a company's acquired, its stock will disappear from the exchange, at a designated price. If you own shares, you'll be paid that price for them. If short, you'll buy them at that price. If you own or are short options, that's the price the underlying will be treated as. The funds seem to get settled at expiration, not the day the shares go off the market. I'm fuzzy on this process, so someone else should clarify. Shares being assigned from a box spread don't directly decrease the box's value, as long as you hold them until expiration. In fact, if the price moves to a point that would have put the assigned options out of the money, the box increases in value. Buying or selling those shares that were assigned (like in my case) puts you at risk - you're exposed to price changes in the underlying. * A synthetic long position means buying a call and selling a put, with the same strike, expiration, and quantity. The return is identical to buying the stock long, x 100. A synthetic short position means buying a put and selling a call - its performance mimics a short sale. ** Subtract the synthetic long's strike from the synthetic short's to get the correct sign. This difference you're calculating is what you'll have to pay/be paid on expiration. Dominoes fucked around with this message at 20:26 on Feb 21, 2015 |
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Feb 21, 2015 19:40
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All those ITM puts you wrote: they weren't exercised against you? They weren't cash settled upon the merger? I think this trade will end up looking worse shortly. Agronox fucked around with this message at 21:20 on Feb 21, 2015 |
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Feb 21, 2015 21:16
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The ITM puts I sold were cash settled today, at expiration.
Dominoes fucked around with this message at 21:48 on Feb 21, 2015 |
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Feb 21, 2015 21:45
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Cash settled at what price? (This is interesting. The market generally doesn't leave free money on the ground, that's why I'm so suspicious.)
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Feb 21, 2015 22:06
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17.75
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Feb 21, 2015 22:09
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Can you please start signing your posts as Richard Domingo?
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Feb 21, 2015 22:14
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Looks like I made $2100 less than I posted - The shares were cash-settled at 15.50, due to a $2.25/share Dutch tax withholding. So the actual amount the buy-in cost me is $2850. That was money lost from the bought-in shares effectively losing 16% in the two-days between buy-in and settlement.
Dominoes fucked around with this message at 22:42 on Feb 21, 2015 |
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Feb 21, 2015 22:38
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Now, does that mean you can file Dutch taxes for some of that money back? I don't know, but if not, that actually makes this a money-loser, right? These merger arb trades can be really tricky sometimes.
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Feb 21, 2015 23:01
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Not a money loser, but it could have been easily if more shares were bought-in. The box was eaten by being forced to buy ~930 shares for ~18.60, and sell for 15.50. TBH it seems fishy that I got stuck with that buy-in price.
Dominoes fucked around with this message at 23:49 on Feb 21, 2015 |
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Feb 21, 2015 23:43
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I am glad it worked out for you! Sounds like it could've been worse. That 18.60 kind of makes sense. It looks like a share of RNA got cashed out to $17.75 plus a contingent right that could be worth up to $4; so maybe the market was valuing that right at $0.85.
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Feb 22, 2015 00:00
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Dominoes posted:* A synthetic long position means buying a call and selling a put, with the same strike, expiration, and quantity. The return is identical to buying the stock long, x 100. A synthetic short position means buying a put and selling a call - its performance mimics a short sale. So a box spread is a way to have 100x leverage vs. buying the actual stock, but still hedge for volatility in case you guess wrong so you don't lose your entire bet?
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Feb 22, 2015 05:03
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No, it's essentially an arb - you're taking two opposite positions that cancel each other out, with a fixed payoff at the end. If you can buy it for less than that payoff or sell it for more, you're locking in money. Except for weird edge cases like this.
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Feb 22, 2015 05:10
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RaoulDuke12 posted:So a box spread is a way to have 100x leverage vs. buying the actual stock, but still hedge for volatility in case you guess wrong so you don't lose your entire bet? It's option contracts that allow you that leverage/hedging ability, spreads are a type of option play.
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Feb 22, 2015 07:08
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Tautologicus posted:It's option contracts that allow you that leverage/hedging ability, spreads are a type of option play. Right, gotcha, it just seemed like the two would cancel each other out, but now I see that that's the point. When I look at it from more of a gambling standpoint I see the play. I can't say I 100% get it but it makes a lot more sense now, thanks for the fourth grade explanation everyone. 
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Feb 22, 2015 08:58
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RaoulDuke12 posted:So a box spread is a way to have 100x leverage vs. buying the actual stock, but still hedge for volatility in case you guess wrong so you don't lose your entire bet? Dominoes fucked around with this message at 15:40 on Feb 22, 2015 |
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Feb 22, 2015 12:02
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I find it dubious that any individual investor would be able to compete against algos in arbitrage situations. Theoretically these arbs should be closed in less than 1 second. How do these arise such that you are able to take advantage of it as an individual investor? What are the margin implications of options being exercised early? Options are obviously much cheaper than the underlying.
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Feb 23, 2015 06:59
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There has to be someone looking for any specific arbitrage situation in order for an algo to take advantage of it over time. New ones pop up all the time and old ones disappear. As the new ones pop up they get saturated until it doesnt exist anymore then everyone tries to find the next one. Arbitrage situations do exist for the individual investor, but no one is going to tell you about them.
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Feb 23, 2015 13:43
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I have a robinhood invite and it expires in 24 hours. Hurry up and grab it. https://www.robinhood.com/signup?invite_code=TDVRZGLH
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Feb 23, 2015 19:23
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More robinhood! https://www.robinhood.com/signup?invite_code=6AEGWH9E https://www.robinhood.com/signup?invite_code=HY3SXN6N https://www.robinhood.com/signup?invite_code=UFPDJSFM
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Feb 23, 2015 21:20
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Arkane posted:I find it dubious that any individual investor would be able to compete against algos in arbitrage situations. Theoretically these arbs should be closed in less than 1 second. What arbitrage? quote:There has to be someone looking for any specific arbitrage situation in order for an algo to take advantage of it over time. New ones pop up all the time and old ones disappear. As the new ones pop up they get saturated until it doesnt exist anymore then everyone tries to find the next one. Arbitrage situations do exist for the individual investor, but no one is going to tell you about them.
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Feb 24, 2015 02:52
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I'm going to spend 1000$ U.S and buy a blue chip stock for my niece who is nearing a year old. My first thought was Wells Fargo. Safe bet? I'm worried that no blue chip stock is an absolute sure bet and I'm wondering how stocks like Coke, Mcdonalds, or IBM will do in the next 20 years. I did think about a Vanguard fund, but I think its something her parents might do in the future.
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Feb 24, 2015 03:37
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dogpower posted:I'm going to spend 1000$ U.S and buy a blue chip stock for my niece who is nearing a year old. My first thought was Wells Fargo. Safe bet? I'm worried that no blue chip stock is an absolute sure bet and I'm wondering how stocks like Coke, Mcdonalds, or IBM will do in the next 20 years. I did think about a Vanguard fund, but I think its something her parents might do in the future. Buy her a savings bond. Any individual stock could be completely worthless in 20 years.
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Feb 24, 2015 03:42
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dogpower posted:no blue chip stock is an absolute sure bet In fact, every individual stock is likely to underperform the aggregate market due to being more volatile, which eats into returns. Every stock has the volatility of the market as a whole, which is roughly compensated in terms of returns, but then its own stock-specific volatility on top of that, which is essentially random and hence not compensated. Yes, it's possible that a given stock might outperform the market, but it's unlikely, and that chance approaches 0 as your time horizon increases. A Vanguard fund (say, VT or V) sounds like it would be perfect for you. This isn't a collectible, there's no loss in value from having more of a thing, even if her parents do decide to buy something similar. (Or they might even buy a different vehicle; Vanguard sells a lot of things.)
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Feb 24, 2015 03:59
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Leperflesh posted:Buy her a savings bond. Any individual stock could be completely worthless in 20 years. This, or a broad-market ETF/mutual fund. If you figure a 20-year horizon, then the market should broadly do quite well, whereas 20 years is an eternity for a single company, even a blue chip. If you had bought an S&P500 ETF 20 years ago today, it'd have gained ~175% in value, not counting reinvested dividends. With reinvested dividends it's about ~335% gain.
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Feb 24, 2015 04:02
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The advantage of a treasury bond is that it's tax-free, so her parents won't have to deal with tax consequences from dividends. You can also buy a 20-year T-bill, which seems like the right time horizon (matures ~ when she's 21), so there's not even a hassle of what to do with share(s) of an ETF or fund if that fund experiences some kind of change within the 20-year horizon that makes it undesirable for the purpose. 20-year T-bills get ~2% to 2.5% yeild, right? That's enough to probably keep up with inflation while being a very safe investment.
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Feb 24, 2015 04:11
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Buy something that's super boom or bust and here's why 1) If it tanks, so what? Who gets mad that their uncle bought them a stock when they were born and it did jack poo poo? The story alone is worth it. How great would it be if your uncle would have bought you Commodore stock in the 80's instead of Apple? You'd never hate the guy for it. I wish my uncle bought me Commodore stock in the 80's. or 2) If the stock does Avatar numbers, you're the best uncle forever, and a legend in the family. You'll have grand nephews named after you. $1k should turn into about $3k if you invest it in a Total Market ETF or the S&P or whatever. Even less if you buy a savings bond. Why not invest in yawns?
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Feb 24, 2015 04:11
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Leperflesh posted:Buy her a savings bond. Any individual stock could be completely worthless in 20 years. Thanks. I will give what you said some thought. Aren't bonds in a bubble and would a saving bond be affected by rising interest rates - especially one with a maturation of 18 years. Okay, I will likely go with an index fund - thanks guys.
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Feb 24, 2015 04:11
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District Selectman posted:Buy something that's super boom or bust and here's why HAHA I like the way you think. I definitely want to be the cool uncle! Thanks guys. dogpower fucked around with this message at 04:20 on Feb 24, 2015 |
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Feb 24, 2015 04:16
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dogpower posted:HAHA I like the way you think. I definitely want to be the cool uncle! As long as you understand that the odds of the stock being worthless (or just worth a lot less) are probably higher than the odds that you'll pick the one big winner out of 100.
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Feb 24, 2015 04:25
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dogpower posted:Thanks. I will give what you said some thought. You mentioned Vanguard, most of their funds have a $3k minimum, but one that doesn't is their STAR fund, which is a blend of a bunch of their active and index funds. It would probably be a perfectly boring and safe choice for this.
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Feb 24, 2015 05:00
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Fuschia tude posted:Not just that, no individual stock is a sure bet. The long-term investing thread is that way, pal. And the math is slightly wrong; there are stocks that have low or even negative correlations with the market under certain conditions, and the odds of a random stock outperforming the market over a certain period is still on the order of 50% or a little less; the thing that approaches zero is the odds of the stock outperforming the market at any arbitrary interval within that period. And if I had to pick a company that would still be around in 20 years, not necessarily showing a profit after that period, I would probably start with a too-big-to-fail bank like Wells Fargo.
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Feb 24, 2015 06:12
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dogpower posted:Thanks. I will give what you said some thought. edit: Also, if I were going to take a 20 year gamble, I'd probably bet on FB. Zuckerberg is young and savvy as gently caress at acquiring the right companies. He is going to make the innovators dilemma his bitch. Buying Oculus alone is going to print them money for a long time. nebby fucked around with this message at 08:21 on Feb 24, 2015 |
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Feb 24, 2015 08:17
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Hobologist posted:the odds of a random stock outperforming the market over a certain period is still on the order of 50% or a little less Your intuition here seems very suspect because it doesn't take into account market entrants during that period. For example, most companies in the current market could go out of business in the next 20 years and have their value captured by new entrants, allowing the market to still grow as a whole. If that sounds wildly unlikely then consider that the average lifespan of a company in the S&P 500 is now around 15 years. There are some other issues also, including a bounded downside and “unbounded” upside.
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Feb 24, 2015 09:34
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My grandparents bought me a few shares of AOL when I was a kid, probably like 10 yrs old. I had fun watching it split half a dozen times and go up 1000% then learned a very valuable lesson on investing when the tech bubble burst. If the kid were a little older, I'd vote for a super speculative play so they'd hopefully at least learn something in the worst case.
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Feb 24, 2015 12:47
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Yeah, if I was looking for the next big thing in 20 years, VR is up there, additive manufacturing, Watson type AI, commercial drones, anti-aging and cognitive improving supplements/pharmaceuticals. Those are my guesses. As far as the odds of a single stock doing well for 20 years, the odds are slim. There was a cool chart somewhere that showed the performance of every stock listed in the Russell 3000 over the last 30+ years. The majority did worse than the broader market, but a few percent outperformed by many orders of magnitude. Like your odds are actually better that a single stock will outperform by greater than 100% than they are that it will just be marginally better. It was very odd. You would expect a Gaussian distribution, or at least I would have, but there's this little blip at the long end of the tail where the outliers live.
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Feb 24, 2015 14:20
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