TLRY trade idea

[TrustyJules 2,921]

Just now, cuegis said:

I'm surprised that any of this fell through to the retail outlets.

Given the sophistication of technology, expertise ,and funding, of institutions like IB, GS etc. who have full time divisions of teams working at this every minute of everyday, you would have expected them to have sucked this anomoly dry today.

Yeah BUT  marijuana stock - many institutions are barred from trading in them.

[BobM 43]

Trusty, I was able to trade this today on tastyworks. Not sure why you could not.

[TrustyJules 2,921]

12 minutes ago, BobM said:

Trusty, I was able to trade this today on tastyworks. Not sure why you could not.

I am stumped - look at the screen when I type the first three letters - as of the Y it comes up empty:

 

I am probably doing something stupid - but I am at least momentarily stumped - any hints?

 

 

Edited September 13, 2018 by TrustyJules

[BobM 43]

I dont know, that's strange.  I'm assuming you are using the stand alone platform and not the web based trading platform from what it looks like.  I was using the stand alone platform.

[TrustyJules 2,921]

Yes it is the stand alone platform.

[Yowster 7,987]

11 minutes ago, TrustyJules said:

Yes it is the stand alone platform.

I believe you said you are somewhere in Europe?   Perhaps that has something to do with it.

[TrustyJules 2,921]

Yep I am in Belgium though I hasten to add I have Dutch nationality!

 

I Chatted with support at TastyWorks - its a bug it seems. Through a trick we forced the stock to appear but its not coming up normally.

 

[4REAL 109]

4 hours ago, clipsnation183 said:

ended up with 400 butterflies and locked in 2K profit. I put in an order for a 1000 more flies but the broker put the kaibosh on me.  

You mean 20K right? Say an average of 10.50cr, equals 20K

[clipsnation183 84]

2 minutes ago, 4REAL said:

You mean 20K right? Say an average of 10.50cr, equals 20K

a lot filled at a lot lower. 

[againstallodds 15]

Would there not be assignment risk, say the short put gets assigned if TLRY drops. What is the worst that can happen in that situation? because to realize the full mispricing, we need to hold to expiry and if at that time stock is between middle and left strikes there is a chance that we can get assigned on the short put, while not being to exercise the long put.

[Lazlo 111]

10 hours ago, TrustyJules said:

Yep I am in Belgium though I hasten to add I have Dutch nationality!

 

I Chatted with support at TastyWorks - its a bug it seems. Through a trick we forced the stock to appear but its not coming up normally.

 

The stock ticker is shown for me on TastyWorks without any workaround. On the other, I cannot open the IB for a credit (error message: Order price is invalid for this trade). Had someone similar experiences?

[TrustyJules 2,921]

2 hours ago, againstallodds said:

Would there not be assignment risk, say the short put gets assigned if TLRY drops. What is the worst that can happen in that situation? because to realize the full mispricing, we need to hold to expiry and if at that time stock is between middle and left strikes there is a chance that we can get assigned on the short put, while not being to exercise the long put.

@againstallodds makes a good point here. The spread in these options is absurd and so you will probably be unable to close. For spreads that are totally OTM of course this does not present a problem but the moment you have a position ITM there will be an issue. Let's take @krisbee 's IC as an example:

If it cannot be closed before the bell today there will be a problem with the stock at (worst case) $117.99. The put spread is fine as it expires worthless. The bought call 118 also expires worthless but the owner of the sold C116 is going to want his shares. Now normally you would short them and fill the stock in the after market or on Monday. This stock on the other hand cannot be borrowed and I wouldn't trust the after-market. That presents a hell of  a risk for this stock. If the stock-price moves up due to people covering the short you may be out a multiple, your maximum room for manoeuvrer is $0.06. Any ITM result presents this problem - which may seem paradoxical as theoretical maximum profit is obtained in the ITM zone. My guess is that as soon as the stock ends over 116.01$ this IC would be in trouble, the MM is going to take back your credit and then some with the spread he will ask. Good luck!

[TrustyJules 2,921]

Just to add - its the sort of situation that leads to early exercise of the option of course to avoid issues. However with a stock this volatile you better be on the phone to your broker before the close.

[Yowster 7,987]

6 hours ago, againstallodds said:

Would there not be assignment risk, say the short put gets assigned if TLRY drops. What is the worst that can happen in that situation? because to realize the full mispricing, we need to hold to expiry and if at that time stock is between middle and left strikes there is a chance that we can get assigned on the short put, while not being to exercise the long put.

Honestly, I don't think assignment risk is big concern because you have spreads in both directions.   With the time value in all legs, nothing is getting assigned now.   As we get closer to expiration, look at the possible scenarios:

• If the stock price is anywhere near our strikes we will likely be able to buy back the iron fly for under the 10.00 spread width.
• If the stock is well beyond (either direction) and hold to expiration, one spread will expire worthless and the other will get assigned on both legs for a net debit of 10.00.   In the handful of times I held an ITM spread through expiration, the assignment on both short and long leg was automatic.

If you happen to get assigned early on a short leg, remember that you still have your long to exercise that will result in net debit of 10.00 when you do so (it may even get exercised automatically when the short leg is assigned early) - the downside is that you'll tie up margin for a day until your long leg gets exercised, but IMO not a bad tradeoff for a zero-risk trade.

 

In the @krisbee trade expiring today that @TrustyJules just cited in the previous post,  If we are in the last hour or two of trading today and the stock price is near his strikes then I'd be very surprised if he can't buy back the spread for less than the 2.00 width (disclaimer - I've never seen anything like this before so maybe I'd be surprised).  If the stock blows by his legs in either direction he can get assigned with a net result of closing for 2.00.

[TrustyJules 2,921]

Just now, Yowster said:

Honestly, I don't think assignment risk is big concern because you have spreads in both directions.   With the time value in all legs, nothing is getting assigned now.   As we get closer to expiration, look at the possible scenarios:

• If the stock price is anywhere near our strikes we will likely be able to buy back the iron fly for under the 10.00 spread width.
• If the stock is well beyond (either direction) and hold to expiration, one spread will expire worthless and the other will get assigned on both legs for a net debit of 10.00.   In the handful of times I held an ITM spread through expiration, the assignment on both short and long leg was automatic.

If you happen to get assigned early on a short leg, remember that you still have your long to exercise that will result in net debit of 10.00 when you do so (it may even get exercised automatically when the short leg is assigned early) - the downside is that you'll tie up margin for a day until your long leg gets exercised, but IMO not a bad tradeoff for a zero-risk trade.

 

In the @krisbee trade expiring today that @TrustyJules just cited in the previous post,  If we are in the last hour or two of trading today and the stock price is near his strikes then I'd be very surprised if he can't buy back the spread for less than the 2.00 width (disclaimer - I've never seen anything like this before so maybe I'd be surprised).  If the stock blows by his legs in either direction he can get assigned with a net result of closing for 2.00.

I am with you on the fact that normally he should be able to buy back but as much as I love the idea of a free lunch I am sceptical. We are in agreement that past the strikes (either way) there is no issue but any spread that threatens to end between the strikes is at risk. The stock closed at 119+ yesterday but afterhours was at 105+ The value of the spread between the strikes is of course never more than 2$ but look at the buy/ask spread, yesterday the 116 call had a buy/ask of 5.80/8 and believe at the close funny stuff happens, I trade pinning on Apple and have seen buy ask spreads of 0.20/0.80for Apple in the last minutes for an exactly at ATM option. For this particular stock I wouldn't make any bets.

[akito 184]

Is the following scenario possible? (Since TLRY is so incredibly eager to move and closing may be difficult) (Just a tiny worry in the back of my head)

 

Say it rockets up and the short call is so ITM and low on time value that it gets assigned (before expiration). Best probable course of action would be to buy to cover the shares and then sell to close the long call. However, say it continues to rocket up beyond what my account size can buy to cover shares, so I am forced to exercise my long call to cover the shares and take the max loss on the call side. Afterwards, say the bubble pops and the stock plummets violently way back down so that the remaining short put is so ITM and low on time value that it gets assigned. I would then have to sell to cover the shares + sell to close long put (near max loss on put side) or exercise the long put to cover (max loss on put side). Would I be looking at almost double the max loss of the iron condor? (If I am missing something, please let me know) I know that the usual premise of an iron condor is that if one side is breached and compromised, the other side will be fine, but I am curious if the extreme movement of this stock may cause both sides to be compromised before expiration.

Edited September 14, 2018 by akito

[NJ_KenRob 157]

Is anybody looking at trying this again this morning? 

And if so, what trade are you looking at?

Would it now be the 105 iron fly?

[Andrew 19]

4 minutes ago, NJ_KenRob said:

Is anybody looking at trying this again this morning? 

And if so, what trade are you looking at?

Would it now be the 105 iron fly?

There's a bunch of stuff with the mid above the width still.  Now whether you will get filled is another thing.  

[NJ_KenRob 157]

I saw that. But we will see what it looks like after open.

I am going to try for something.

I have never seen anything quite like this before...

[TrustyJules 2,921]

9 minutes ago, akito said:

However, say it continues to rocket up beyond what my account size can buy to cover shares, so I am forced to exercise my long call to cover the shares and take the max loss on the call side.

This scenario is not a problem - remember you collected the premium and it makes up the difference. The problem in my opinion is only if you are between the strikes where you have exercise against you and no reason to use your long position. I also believe - without proof - that probably the put is less at risk of early exercise. I mean who would have the shares to put them to you? and buying on the market to exercise may be tricky although of course its not excluded.

[TrustyJules 2,921]

Well the madness is still there but TastyWork wont let me trade the IC or Iron Fly's directly at least - possibly legging in is possible but its too risky I think.

[akito 184]

1 minute ago, TrustyJules said:

This scenario is not a problem - remember you collected the premium and it makes up the difference. The problem in my opinion is only if you are between the strikes where you have exercise against you and no reason to use your long position. I also believe - without proof - that probably the put is less at risk of early exercise. I mean who would have the shares to put them to you? and buying on the market to exercise may be tricky although of course its not excluded.

Ah, yes, I also think the put side may be at a lower risk of assignment, but regarding the premium covering, going back to the wild scenario I mentioned that both sides might be breached, wouldn't the premium, let's say $10.50, for example, only cover one side? So $10.50 (premium received) - $10.00 (max loss on call side) - $10.00 (max loss on put side) ~= -$9.50? So if the stock moves like crazy and exihibits extreme bubble behavior and causes both sides to be breached, wouldn't this trade actually not be risk-free? Unless I'm still missing something.

[daniel500 52]

-Filled Oct 105/115/125 Iron Fly at 10.15 Credit and Oct05 105/115/125 Iron Fly at 10.25 Credit.

[TrustyJules 2,921]

Ok lets just type this out:Stock @110

BTO c 120

STO C 110

STO P 110

BTO P100

Credit 10.50$

 

Or

BTO P 100

STO P 105

STO C 115

BTO C 120

Credit 5.10

 

So stock flies to 150$ (it has to be high because otherwise even with a day left its unlikely to be exercised) say and you get assigned on the call side and exercise yours. The stock then plummets to $70 and you get assigned on the put and must exercise yours. Yeah in that case it doesnt end well but surely the likelyhood of this happening is not only small. What were you doing when the stock was at 150? Hoping the puts would take care of themselves?

[Andrew 19]

TOS started blocking my orders.  TW won't let them through either.

[akito 184]

2 minutes ago, TrustyJules said:

So stock flies to 150$ (it has to be high because otherwise even with a day left its unlikely to be exercised) say and you get assigned on the call side and exercise yours. The stock then plummets to $70 and you get assigned on the put and must exercise yours. Yeah in that case it doesnt end well but surely the likelyhood of this happening is not only small. What were you doing when the stock was at 150? Hoping the puts would take care of themselves?

One of the conditions I had in my wild scenario was difficulty in closing, so painting a worst case scenario where the puts would not close and you would have to wait until expiration, but the stock plummets before then causing the short put to be assigned. Hm, so this worst case scenario might indeed be possible (albeit, as you have stated that this likelihood is very low), but still existent.

[rayray16 18]

I just filled an IC for 10.50  

[Djtux 542]

19 hours ago, Djtux said:

I got filled for 10.79 credit on the 105/115/125 iron butterfly in a single 4 leg order. I'm not sure what's going on or if i'm making a mistake.

I just closed at 10.60. I prefer to get out. I don't understand what risks i'm actually taking and don't want to find out.

Good luck if you are still in it.

[TrustyJules 2,921]

Just now, akito said:

One of the conditions I had in my wild scenario was difficulty in closing, so painting a worst case scenario where the puts would not close and you would have to wait until expiration, but the stock plummets before then causing the short put to be assigned. Hm, so this worst case scenario might indeed be possible (albeit, as you have stated that this likelihood is very low), but still existent.

If the stock is at 150$ you will be able to close the 100 puts. Its not that far down that the problem with closing lies, its ATM and near ATM.

[Rogers 263]

It's like finding a $50 bill on the ground..   Exciting, yet terrifying.   Should I pick it up?  Should I keep it?  Is it a trap?  

 

[cuegis 683]

7 minutes ago, Djtux said:

I just closed at 10.60. I prefer to get out. I don't understand what risks i'm actually taking and don't want to find out.

Good luck if you are still in it.

Smart choice.

If you are able to sell something for greater than it's maximum value it dosn't mean that you will be able to buy it back at maximum value and lock in that profit.

Hence, selling a $10 spread for $11 is no guaranty that you just made a risk free profit because the market is not there to allow you to close it out.

And, if you are dealing with options that are expiring today, there is automatic exercise unless the holder of the long option notifies the broker by 4:30 pm EST not to exercise that option.

It opens up a floodgate of unknown possibilities that can take place in after hours trading leaving you uncertain of where you stand.

[Yowster 7,987]

If these were European options with no early exercise then none of this would be an issue.   So the biggest risk is a large spike upward in stock price causing the call legs to be early exercised and therefore closed at 10.00, and then you are left with either closing the put leg (resulting in a net loss) or waiting it out and not hoping for a huge collapse (which would be certainly possible with a stock like this).   The question really boils down to how likely it is for the call legs to be exercised early?  The Oct monthly 165 call (which represents a 50% increase in stock price from where it is now) still has about $2 of time value, so it would seem we have a lot of leeway.   Also, any drop in the sky-high IV may allow us to close for less than the width of the spread.   My position is relatively small, so I'm going to wait it out.  At some point, I'm going to open a GTC to close it, I just have to figure out what limit price I want to use (I'm in the Oct monthly 105/115/125 iron fly at 10.50 credit)

[NJ_KenRob 157]

Well I wanted in on this fun so I did a Oct19 100/110/120 IFLY for 10.50cr

Edited September 14, 2018 by NJ_KenRob

[Rogers 263]

20 hours ago, clipsnation183 said:

ended up with 400 butterflies and locked in 2K profit. I put in an order for a 1000 more flies but the broker put the kaibosh on me.  

@clipsnation183Is your P/L going crazy?

[clipsnation183 84]

2 minutes ago, Rogers said:

@clipsnation183Is your P/L going crazy?

My position is below. Not sure thinkorswin is calculating correctly. I have like 14K guaranteed profit in this riskless butterfly trade. I'm getting really nervous. Sold almost 1000 butterflies at various stikes. 

I have to hold this til expiration. 

 

[Rogers 263]

15 minutes ago, clipsnation183 said:

My position is below. Not sure thinkorswin is calculating correctly. I have like 14K guaranteed profit in this riskless butterfly trade. I'm getting really nervous. Sold almost 1000 butterflies at various stikes. 

I have to hold this til expiration. 

 

Ok, I don't feel so bad.. I just have a few positions and TOS is telling me I am having a very bad day    

So you don't have the $27 million to cover if it doesn't work out?

[Yowster 7,987]

@clipsnation183 As an alternative to waiting until expiration, you can submit GTC orders to close positions at 10.00.   It shouldn't take much of an IV drop to be able to close at that price.    The only real risk is early short assignment on one half of the trade, and being left with the other half still having some value - but don't know how much of a risk early assignment is since Oct19 strikes 50% away from ATM still have a lot of time value.

 

[cuegis 683]

It's probably a good idea, when entering into new, uncharted territory, to start very small, just to see what it is that you are dealing with, before jumping all the way in. You would probably want to first actually take a profit, and exit 1 trade, before jumping in for more.

[cuegis 683]

There is SO much premium in these options that early exercise probably is unlikely. I'm very interested to see how far out, options expiring today, in the last hour , still have "extrinsic" premium in them.

[clipsnation183 84]

9 minutes ago, Rogers said:

Ok, I don't feel so bad.. I just have a few positions and TOS is telling me I am having a very bad day    

So you don't have the $27 million to cover if it doesn't work out?

Very short of 27M. I feel I'm getting over my head. I need a walk. 

[TrustyJules 2,921]

On TW you cannot enter the trade as an iron butterfly but you can do it a spread at the time. Not filled on it but close to.

[RapperT 335]

::posts in epic thread::

 

ok carry on.

[cuegis 683]

The,expiring, ATM ($103) Straddle is $5.00 at 1:20 PM

Also, .10 delta options are still $1.00....expiring in 2 1/2 hours.

[NJ_KenRob 157]

I have an order in to close my 100/110/120 IFLY at 9.95. No takers...

Mid shows as 9.85...

Edited September 14, 2018 by NJ_KenRob

[skydragon 51]

51 minutes ago, clipsnation183 said:

Very short of 27M. I feel I'm getting over my head. I need a walk. 

@clipsnation183 I sincerely hope all this goes well for you.  Thanks for bringing the trade to the group's attention and sharing the excitement.  I've decided to sit this one out - I don't fully understand the trade, so I'm playing it safe.  But I am on the sidelines in awe cheering on those who have taken the plunge.  Power to the people!

[Azov 20]

TOS is apparently having none of this any more. I can’t even get an order in for one iron fly. It keeps rejecting orders and telling me to contact the margin desk (even though account margin isn’t an issue). I really don’t feel like talking this through with one of their margin people, so I guess I’ll watch from the sidelines as well. 

 

Good luck to everyone in the trade! 

[KSmith 0]

@clipsnation183 Thanks for the tip on this.  

Im in with others on the Oct IC.  Plus just closed on Sept 21 BWB - +100 - (2) 110 + 115 for a credit of 0.66.  Lets see where we end up!

[clipsnation183 84]

5 minutes ago, KSmith said:

@clipsnation183 Thanks for the tip on this.  

Im in with others on the Oct IC.  Plus just closed on Sept 21 BWB - +100 - (2) 110 + 115 for a credit of 0.66.  Lets see where we end up!

I would suggest being careful this one. As @Yowster mentioned, there is risk of assignment if the shares continue to rally. 

[Yowster 7,987]

57 minutes ago, clipsnation183 said:

I would suggest being careful this one. As @Yowster mentioned, there is risk of assignment if the shares continue to rally. 

I'm not sure how high the risk of assignment truly is, I think the stock price move would have to be quite large for that to happen.    But early assignment on one side is the only losing scenario for this trade (if entered for a credit above the spread width).

[cuegis 683]

I would be interested to know if anyone who sold any of these spreads, for greater than it's maximum value, has actually bought the spread back, and closed out the trade?

And, if so, at what price?

Since we know that it isn't that difficult to sell these spreads for greater than their "maximum value", everything now rests on the reliability of this specific market to allow one to close out the trade at some point prior to expiration.

It is true that "theoretically", if you sell a $10 wide spread ( any spread), for $11, there is a "theoretical" profit, of at least $1.00 "at expiration".

I haven't done any trades here so I don't know the answer to this but I suspect there might be a risk factor that is priced into any spread.

What we need to see is how easy it is, or if it is possible at all, to buy back these spreads, and at what price.

Here is an example of the kind of risk that is involved.

 

The stock is at $110, so you sell a $120/$130 call vertical for $11 with 2 weeks to expiration, to keep the spread OTM.

Well that is $1.00 of "free" money, right?

Only the market can answer that question.

Now you place an order to buy it back for $9.50 to take your profit,and not get too greedy.

A few days go by and you don't get filled, so you now bid "max value" ($10) to buy it back.

A few more days pass and you don't get filled...Uh oh!

So, you think "well of course I can buy it back for "greater" than max value, who wouldn't sell that?"....so you bid $10.25.

You can't even buy it back at a premium.

If this were to happen, the only thing you have left to give you any comfort, is that "at expiration" the spread cannot be more than $10.

But, do you really want to hold this through expiration?

 

The one thing we know with certainty is that this particular stock, at this particular time, can be at virtually ANY price at expiration (ok, maybe not $5000!)

It can easily be at $150, $90, $125 etc.

So selling spreads that are far OTM now, might be halfway between strikes in a few days, or at expiration.

 

If you hold until expiration, and the price happens to be at $125, right between your 2 strikes, what are you going to do?

Now assignment risk is very real...even worse, non assignment risk is just as real.

If you wait until the close, on expiration day, and at 4PM the stock is $125, there is automatic exercise unless the call holder ( of your short $120 calls) notifies their broker by 4:30PM that they do not want it to be exercised.

We know what can happen to this kind of stock in after hours trading.

It may close at $125 at the 4PM close, but by 4:15pm, be trading at $118.

So, what do you do?

Are you going to be assigned, or not?

Do you buy back the stock assuming that you will assigned through automatic exercise.

So you buy the stock at the (4PM) close at $125 to cover the short calls, and by 4:30 it is trading at $118 and your short ($120) calls are not exercised, and you are holding outright long stock that can easily open at $95 ( or anywhere) on Monday.

I know this might seem like a wild, far fetched, stretch of the imagination.

But this is not MSFT or IBM, it is a very unusual animal right now.

 

Given the nature of this environment, it might be possible that , because of the very real risks involved in taking any position, the market makers might have built in a "risk premium" to these trades to compensate for the risks associated with taking a given side of the trade.

 

They may have decided that .50 cents (selling a $10 wide spread for $10.50) is not enough to take on that level of risk.

So, they might have created a "market" for these spreads, and it might look something like 5% bid / 15% ask, above a spread's maximum value.

If that were the case , then a $10 spread would be $10.50 bid / $11.50 ask, just to give an example.

Like I said, I haven't taken any positions in these options, for some of the reasons I have mentioned, so I don't know the answer from personal experience.

 

Maybe there is very little risk, and I am just imagining an extreme worst case scenario.

 

This is why my initial question would put an answer to all of this.

For those of you , who have sold a spread for greater than it's "maximum value", have you been able to buy that spread back? And, if so...at what price?

We know you can sell these spreads, but how reliable is the market to be able to buy that spread back, well before expiration, because you really do not want to get anywhere near expiration with these.

 

I don't think there is any risk of "early assignment"  as there is such a HUGE amount of extrinsic value in all of them, and I doubt anyone is just going to give up $4.00 of time premium for an early exercise, but who knows.

It is the other kinds of risks that I mentioned which should be a concern.

 

What you can count on is that whatever applies to a "normal" stock, under "normal" conditions, probably does not apply in this case, at this time.