TLRY trade idea

[NJ_KenRob 155]

@clipsnation183 What broker are you using?

[clipsnation183 84]

10 minutes ago, NJ_KenRob said:

@clipsnation183 What broker are you using?

TastyWorks

[clipsnation183 84]

14 minutes ago, TrustyJules said:

Ouch - position sizing remains difficult when one sees a good thing.

I thought I might incur loses of 1M+. I had 950 spreads! I got lucky. 

[Rogers 263]

2 minutes ago, clipsnation183 said:

I thought I might incur loses of 1M+. I had 950 spreads! I got lucky. 

There is a positive side to every story.  Just need to work on making it back now.  Also, you shouldn't need to worry about paying any taxes on gains for the year.

 

[skydragon 51]

@clipsnation183 So sorry to read of your losses.  It's likely the hardest hit that I've read about on these boards.  Hope you can manage to recover okay.  It's sad to see a too-good-to-be-true story play out to the down side. 

[clipsnation183 84]

16 minutes ago, skydragon said:

@clipsnation183 So sorry to read of your losses.  It's likely the hardest hit that I've read about on these boards.  Hope you can manage to recover okay.  It's sad to see a too-good-to-be-true story play out to the down side. 

Thanks. I'll come back from this. Just a set back and good lesson. Almost all traders have blown up a least one account. Here are some key points from my debacle:

 

1. Always research a new trade and review the old trades periodic.

2. Always have a well thought out thesis. 

3. Understand what are the risks - There's always fricken risk to every trade - I had over 10 million dollars worth of theoretical risk that I didn't know about in my TLRY trade mainly in the short calls.  

5. Ask your broker if this is a good trade - my broker explained that TLRY spreads where trading more than the width because of the carry cost of the short calls. I would have not entered the trade had I known this and save myself from a six figure loss. However, I probably would have lost this some other way.  

6. Paper trade it first

7. Trade small

8. Trade small

9. See #7 and 8

[Kim 7,421]

@clipsnation183This is obviously very unpleasant and expensive experience, but hopefully it will have some positive side if you can learn from it. And this is exactly why the first advice I give all traders is about position sizing. You think it is just a cliche - till you experience it first hand. I believe those lessons make us better traders, but I know at this point it's hard to see it this way. Your key points are very good, very few traders would be mature enough to come to those conclusions instead of blaming someone else on their mistake.

The best advice I can give you at this point: don't try to "make it back". By doing this you will start taking more risk, which might lead to more losses. Just continue to do what works for you, and the recover will come.

[Mdahl 4]

@clipsnation183 Thanks for sharing all of this in an open, humble way.  I've been there before, on the line with my broker and that sinking feeling hits my stomach as I start to realize the crap is hitting the fan.  Your experience is making it too real for me again, so I'm feeling like the $10K portfolio approach may be the way for me to go for awhile... 

Hang in there; sounds like you've got a good perspective and attitude about it.  Thanks again for sharing the experience and takeaways.

[Arthur 32]

@clipsnation183 Thanks for sharing this sad story which will be a lesson for all of us. Like others have noted, it takes a lot of courage to be so open and honest about it! Cheer up and good luck to you in the future!

I have a general question to the community about the risk of assignment and why it can be so devastating. We never trade naked short options, so if you have an ITM short call it always means that you have an ITM long call as well (different strike or expiration). So, if you get assigned on your ITM short calls, why can't the broker just exercise the long calls to balance the position?

[clipsnation183 84]

1 hour ago, Arthur said:

@clipsnation183 Thanks for sharing this sad story which will be a lesson for all of us. Like others have noted, it takes a lot of courage to be so open and honest about it! Cheer up and good luck to you in the future!

I have a general question to the community about the risk of assignment and why it can be so devastating. We never trade naked short options, so if you have an ITM short call it always means that you have an ITM long call as well (different strike or expiration). So, if you get assigned on your ITM short calls, why can't the broker just exercise the long calls to balance the position?

If you trade small enough, assignment shouldn't be all that bad. This trade, while I thought was risk free in terms spread, had huge risk because assignment and I traded so big.  

[clipsnation183 84]

Anyone with ITM short calls with little extrinsic value should get out now and take a loss. I had to pay $5K carry cost for just one day to hold my short stock on assignment (3200 shares). This stock is bitcoin-esque.

[clipsnation183 84]

21 minutes ago, clipsnation183 said:

If you trade small enough, assignment shouldn't be all that bad. This trade, while I thought was risk free in terms spread, had huge risk because assignment and I traded so big.  

Also, there is hidden margin in each spread, once the assignment happens you can get a margin call for hundreds of thousand. The trade was very deceptive. 

[cuegis 683]

The market makers placed a "risk premium" into everything.

This is why it was not that difficult to sell spreads for greater than their maximum value.

In order for them to take on the risk associated with the sell side (short options) part of the spread, they had to be paid a "fair" amount for that risk.

[Djtux 542]

37 minutes ago, clipsnation183 said:

Anyone with ITM short calls with little extrinsic value should get out now and take a loss. I had to pay $5K carry cost for just one day to hold my short stock on assignment (3200 shares). This stock is bitcoin-esque.

That gives an even higher borrow rate than what could be seen in IB on Thursday afternoon : https://steadyoptions.com/forums/forum/topic/4792-tlry-trade-idea/?do=findComment&comment=109715

 

Thank you for taking the time to share your experience.

And for anyone who wants to read more about trading with hard to borrow stocks, i can recommend reading the case SEC v Optionsexpress : https://www.sec.gov/litigation/opinions/2016/33-10125.pdf

[Yowster 7,962]

2 hours ago, Arthur said:

I have a general question to the community about the risk of assignment and why it can be so devastating. We never trade naked short options, so if you have an ITM short call it always means that you have an ITM long call as well (different strike or expiration). So, if you get assigned on your ITM short calls, why can't the broker just exercise the long calls to balance the position?

You are correct about the side of the trade you get assigned, in this case you still have the long calls so the call spread can be closed for the width of the spread by exercising your long call.   However,  because the IV of the puts is 4x the IV of the calls you are left with a put spread that still has significant value - so you have 2 choices, keep the put spread in play and risk a stock price reversal or close the put side resulting in an overall trade loss because the closing price for both sides winds up being much more than the width of the iron fly

[NJ_KenRob 155]

Well I have the 100/110/120 IFLY and the price just keeps going up.

Trying to buy it back for 10.10 and the mid is showing 15.00!

CRAZY!!

[clipsnation183 84]

50 minutes ago, NJ_KenRob said:

Well I have the 100/110/120 IFLY and the price just keeps going up.

Trying to buy it back for 10.10 and the mid is showing 15.00!

CRAZY!!

take the lost at this point. Assignment is much worse. 

[wr200m 22]

20 hours ago, clipsnation183 said:

One year's salary exactly. BTW, I would consider getting out if you have the 105 strikes if you have them. My broker just ban all trading in TRLY thanks to me.

@clipsnation183 amazing how you handled this horrific learning experience with such peace. Hats off to you. I too got hit - even I haven't been trading SO recently - I got into this. I'm kicking myself for being a greedy bastard. In addition to learning from this painful lesson, I am telling myself to learn how you have handled everything, with pride.

For the pot stock with recent news events, I suppose many crypto minded figures have piled in. It is even wilder than BTC last fall. I'm fairly certain after I cut my loss - by the time expiration comes, the position would have been profitable - but for me that'd be impossible with the short calls in place.

Lesson for myself: 1. heed the moral of "too good to be true". 2. do not play if I don't understand. 3. position sizing regardless how good something sounds on paper. 4. there's no hail mary.

[clipsnation183 84]

 

The bad trip for cannabis shorts continues with $TLRY U.S. trade pact. Short interest is $417 million, stock borrow rates on existing shorts are 211% fee, new borrows as high as 700% fee. $TLRY Shorts are down $57 million in mark-to-market losses. Other pot shorts are down $50mm.pic.twitter.com/q3TvnqwRoT

 

7:45 AM - 18 Sep 2018

 

If you have ITM calls, get out at any cost. 

 

[rayray16 18]

Got out of the 110-120-100 IC for $14.00. That sucked luckily only did a small allocation but still it was rough to get out. 

[Rogers 263]

Wow.  What a wild ride.  I guess a straight call or call debit spread would have been the better play.  

[mccoyb53 800]

Hi all.

 

I have been following this trade idea with interest and could easily have been caught doing a few of these. I have reread a couple of articles from Kim and others and I would suggest that it is worth reading " How position sizing impacts your returns ". It is a great article to read. 

 

I have posted a question to Kim about how many is the max positions a trader should have open at any one time. 

Edited September 19, 2018 by mccoyb53
Clarification

[cuegis 683]

41 minutes ago, Rogers said:

Wow.  What a wild ride.  I guess a straight call or call debit spread would have been the better play.  

It's up $64 in early hours trading.

It's $218.

I guess in retrospect, even though any choice had high risk, the best choice would have been to just sell puts.

This way the worst case is that you would own the stock at a much lower price than the strike.

But, there would be very little assignment risk because the premium in the puts was at 300% IV , and unlike calls, which were trading at intrinsic value,even calls $40 OTM were trading at $9.00.

No chance of assignment, but even if you were, it would be long stock, as opposed to short stock with a 300%+ borrow rate.

Edited September 19, 2018 by cuegis

[Yowster 7,962]

I only had a couple of 105/115/125 iron flys opened for 10.50 credit - yesterday afternoon I bought back the call side of the trade for 7.30.    I left the put side in play, figuring that with its sky high IV of near 300% (and 4x that of the calls) it would take a huge move below 105 for the put spread to trade near its width.   I figured the risk/reward setup well for the put side to remain in play - of course it was easy to make this decision with only a couple of flys in play

[clipsnation183 84]

11 minutes ago, Yowster said:

I only had a couple of 105/115/125 iron flys opened for 10.50 credit - yesterday afternoon I bought back the call side of the trade for 7.30.    I left the put side in play, figuring that with its sky high IV of near 300% (and 4x that of the calls) it would take a huge move below 105 for the put spread to trade near its width.   I figured the risk/reward setup well for the put side to remain in play - of course it was easy to make this decision with only a couple of flys in play

I would have lost over half a million had not gotten out Monday. I believe the grace of God helped me liquidate near 1000 flys on Monday one day before the break out.  Sorry to everyone for the worst trade in history.

On the bright side, I believe this loss made me a better person. It nearly took everything away from me and taught me not to take anything in life for granted because it all can be gone with one press of a button (in my case, many presses). It's only money. My biggest fear was this trade was going to take away my health, friends and family. A loss that would have ended everything. I know we traders want to make money trading, but I think if we focus too much on money, the more we tend lose it. Good trading is all about the process and not the money.   

[allan 0]

I am newbie here. It's a sad story.

But I just didn't get it, maybe I am wrong. If you have a 100/110/120 iron fly. Then you have a 110/120 call credit spread in it. With the short 110 call be assigned, yes you will carry huge borrowing cost. But remember you have same amount of long 120 call, you can immediately ask broker to assign that part of the long call, to offset the shorted stock. That shall make the book even, with no additional loss. 

Am i missed anything there? 

 

[Djtux 542]

Looks like there is someone from SO trying to get out of the 115 :

Good luck.

[Djtux 542]

Just now, allan said:

But remember you have same amount of long 120 call, you can immediately ask broker to assign that part of the long call, to offset the shorted stock. That shall make the book even, with no additional loss. 

Am i missed anything there? 

That might not work for a hard to borrow stock. I'm not 100% sure how it works, but from what i recommend in an earlier post from the sec v optionexpress, if your broker can't locate a stock to borrow, and can't deliver that, you might need to buy back the stock. Also there is a problem of timing if you exercice after you receive assignment, and you might not have the choice as it seems your broker might buy back the shares for you if they can't borrow stocks.

[cuegis 683]

Oct $90 puts, for example, are $13.

That effectively means your cost basis for the stock would be $77,if you sold them.

Margin is $2000.

Probably the lowest risk of everything available in "this" environment.

Or any WAY OTM put

[Djtux 542]

1 minute ago, cuegis said:

Oct $90 puts, for example, are $13.

That effectively means your cost basis for the stock would be $77,if you sold them.

Margin is $2000.

Probably the lowest risk of everything available in "this" environment.

Or any WAY OTM put

I wouldn't touch that. I haven't run the numbers, but it might not make sense with the fundamentals. Maybe you need to sell pot to every person on the planet and maybe aliens to justify the valuation.

[allan 0]

So thats the problem of the broker. They can assign short stock to me, although I don't have the stock. While if I want to assign my long option right, I can't assign them, because the broker can't find another client with the stock to let me do the assignment. 

Maybe there is a chance of legal action? 

[cuegis 683]

Just now, Djtux said:

I wouldn't touch that. I haven't run the numbers, but it might not make sense with the fundamentals. Maybe you need to sell pot to every person on the planet and maybe aliens to justify the valuation.

I'm not doing it either.

I was just saying that out of all the possibilities, which are all very high risk, you want to avoid anything that has a short call in the mix.

Even if the short call is a $350 strike!

[cuegis 683]

It is sort of ridiculous that, depending on which put you sell, you could effectively buy this stock for as low as $60

[Azov 20]

Well, it’s not much, but I was able to make a decent profit selling put credit spreads on TLRY. 

 

On Monday, I sold the 12 Oct 140/135 put spread for $4.41 and just bought it back for $3.25 (23% profit on $5 spread).

 

I also sold the 21 Sep 120/115 put spread for $3.20 and bought it back yesterday for $1.45 (35% profit).

 

Give the volatility of the stock, I don’t think I’ll try this again, but wanted to report a slightly positive outcome. 

 

Many condolences and thanks to @clipsnation183 for suffering through a literal cautionary tale to help make us all better traders. 

[Yowster 7,962]

25 minutes ago, allan said:

I am newbie here. It's a sad story.

But I just didn't get it, maybe I am wrong. If you have a 100/110/120 iron fly. Then you have a 110/120 call credit spread in it. With the short 110 call be assigned, yes you will carry huge borrowing cost. But remember you have same amount of long 120 call, you can immediately ask broker to assign that part of the long call, to offset the shorted stock. That shall make the book even, with no additional loss. 

Am i missed anything there? 

 

Correct, you can exercise your long call and effectively close the put side for 10 (the width of the call spread).   However, once you do this, the put side will still have a ton of value due to its sky high IV that is 4x that of the calls - so to close the put spread side you'd be looking at somewhere near 4.00  meaning it would cost your around 14.00 to close the entire trade (a big loss considering your up front credit was a little over 10.00)

[allan 0]

9 minutes ago, Yowster said:

Correct, you can exercise your long call and effectively close the put side for 10 (the width of the call spread).   However, once you do this, the put side will still have a ton of value due to its sky high IV that is 4x that of the calls - so to close the put spread side you'd be looking at somewhere near 4.00  meaning it would cost your around 14.00 to close the entire trade (a big loss considering your up front credit was a little over 10.00)

what I do is to make even of the call spread. With two leg of the calls be settled. My temporary booking will be:  $10 - credit from the call spread. 

I will left the put credit spread there, now my total risk is the width of put credit spread, which is 10, while my total credit is more than 10. so there is no margin required, I can just sit and wait will expiration. no body can force me to close the put credit spread. 

 

[akito 183]

@allan Adding on to Yowster's reply, there is also the following out of the ordinary things to add onto the cost of closing in that example:

-the cost to carry the short stock after assignment (clipsnation said he paid around $5000 for holding 3200 shares for one day, so let's say that is $156.25 for 100 shares)

-assignment + exercise fees

-any over the phone broker assisted trade fees (if it becomes necessary)

[Rogers 263]

 

My plan is to forget about this stock and move on.  I played along and took a small loss on 2 flies Monday.  

Borrowing from Harry Potter (Currently reading it with my 7 year old).   TLRY = "He-Who-Must-Not-Be-Named"

 

[akito 183]

2 minutes ago, allan said:

what I do is to make even of the call spread. With two leg of the calls be settled. My temporary booking will be:  $10 - credit from the call spread. 

I will left the put credit spread there, now my total risk is the width of put credit spread, which is 10, while my total credit is more than 10. so there is no margin required, I can just sit and wait will expiration. no body can force me to close the put credit spread.

TLRY is clearly exhibiting bubble behavior and it may pop before expiration, which might endanger your put credit spread and cause additional losses.

[allan 0]

8 minutes ago, akito said:

TLRY is clearly exhibiting bubble behavior and it may pop before expiration, which might endanger your put credit spread and cause additional losses.

no, it won't. remember that my total risk with the put credit spread is $10. And I have already more than $10 credit in hand. And I already get rid of the troubling call part. where is my risk?  

 

[cuegis 683]

4 minutes ago, allan said:

what I do is to make even of the call spread. With two leg of the calls be settled. My temporary booking will be:  $10 - credit from the call spread. 

I will left the put credit spread there, now my total risk is the width of put credit spread, which is 10, while my total credit is more than 10. so there is no margin required, I can just sit and wait will expiration. no body can force me to close the put credit spread. 

 

Just exercise your long call right away so that you are out of all call related options, and any short stock possibility.

Nobody is exercising any long puts, and giving up 300%+ IV of extrinsic value.

I would rather have my risk be the stock dropping $100++, than to have any possibility of being assigned to short stock.

[akito 183]

Just now, allan said:

no, it won't. remember that my total risk with the put credit spread is $10. And I have already more than $10 credit in hand. And I already get rid of the troubling call part. where is my risk? 

Yes it absolutely will. In your example, you said the short call was assigned and you exercised your long call to cover ($10.00 loss since width is $10). That already basically wipes out your $10 credit so there is basically no credit left "in hand" to cover the risk of the put spread when this bubble pops and breaches your put spread.

[allan 0]

54 minutes ago, clipsnation183 said:

I would have lost over half a million had not gotten out Monday. I believe the grace of God helped me liquidate near 1000 flys on Monday one day before the break out.  Sorry to everyone for the worst trade in history.

On the bright side, I believe this loss made me a better person. It nearly took everything away from me and taught me not to take anything in life for granted because it all can be gone with one press of a button (in my case, many presses). It's only money. My biggest fear was this trade was going to take away my health, friends and family. A loss that would have ended everything. I know we traders want to make money trading, but I think if we focus too much on money, the more we tend lose it. Good trading is all about the process and not the money.   

like I said in my previous post. Why don't you ask your broker to exercise your long 115 call? assuming your position is 105-/110/115 BF. You are shocked by assignment of short 110 call. But you have the right to exercise your long 115 call, right? your broker didn't allow you to do so? maybe you can sue the broker, isn't it? 

 

[cuegis 683]

3 minutes ago, allan said:

like I said in my previous post. Why don't you ask your broker to exercise your long 115 call? assuming your position is 105-/110/115 BF. You are shocked by assignment of short 110 call. But you have the right to exercise your long 115 call, right? your broker didn't allow you to do so? maybe you can sue the broker, isn't it? 

 

You are right...they can't have it both ways.

They cannot honor the call holder who exercised the call that left him short stock, and then not allow him to do the same thing, and honor his request to also exercise his long call.

 

[allan 0]

10 minutes ago, akito said:

Yes it absolutely will. In your example, you said the short call was assigned and you exercised your long call to cover ($10.00 loss since width is $10). That already basically wipes out your $10 credit so there is basically no credit left "in hand" to cover the risk of the put spread when this bubble pops and breaches your put spread.

 

yes, you are right, there is still a risk there. thanks. 

 

[cuegis 683]

As long as there are no calls in your position, especially any short calls, then you have removed any of the "additional" risks that are involved with playing in this arena.

Of course this has huge "bubble" potential but, we are way too early in this story for the bubble to be days away.

Just, for example, I pulled up any Sept 21, far OTM put spread.

So, for example, the (sept 21) $145/$120 put vertical can be sold for $3.00.

No "short stock" assignment risk.

Just "normal" risk that the stock falls by $90 in the next 2 days.

At least you have removed all of the "additional" (short stock) risks from the scenario.

[Djtux 542]

1 minute ago, cuegis said:

As long as there are no calls in your position, especially any short calls, then you have removed any of the "additional" risks that are involved with playing in this arena.

Of course this has huge "bubble" potential but, we are way too early in this story for the bubble to be days away.

Just, for example, I pulled up any Sept 21, far OTM put spread.

So, for example, the (sept 21) $145/$120 put vertical can be sold for $3.00.

No "short stock" assignment risk.

Just "normal" risk that the stock falls by $90 in the next 2 days.

At least you have removed all of the "additional" (short stock) risks from the scenario.

There are other risks like trading being suspended. You can look into what happened for LFIN and the options holder LFIN. Might not happen, but who knows.

[allan 0]

16 minutes ago, Djtux said:

There are other risks like trading being suspended. You can look into what happened for LFIN and the options holder LFIN. Might not happen, but who knows.

yes, so avoid super crazy stocks is truly lesson learned. 

[cuegis 683]

9 minutes ago, Djtux said:

There are other risks like trading being suspended. You can look into what happened for LFIN and the options holder LFIN. Might not happen, but who knows.

I guess your'e right . I don't know about that story.

But that really is an "outlier" situation.

Since this is the kind of stock that it is, I guess it is vulnerable to a variety of "unusual" risks that we never think about, because they are not possible with older, established stocks.

But, for all of those "regular folks" out there, who feel as if they missed out on getting into this thing at the beginning...there "technically" is a way for them to buy this stock as low as $60.

Assuming that the US markets continue to function.

 

[Djtux 542]

3 minutes ago, cuegis said:

I guess your'e right . I don't know about that story.

But that really is an "outlier" situation.

Since this is the kind of stock that it is, I guess it is vulnerable to a variety of "unusual" risks that we never think about, because they are not possible with older, established stocks.

But, for all of those "regular folks" out there, who feel as if they missed out on getting into this thing at the beginning...there "technically" is a way for them to buy this stock as low as $60.

Assuming that the US markets continue to function.

 

I'm not an expert either. I'm just pointing out some risks that are higher than usual.

For LFIN option holders, there is the subreddit https://www.reddit.com/r/LongFinOptions

LFIN was a a crazy stock ipoed in dec 2017, talked about crypto&blockchain, was even included in the Russel 2000 index before being investigated and trading halted, and finaly delisted. I haven't read the whole thing, but long story short, some people tried to buy puts to enjoy the ride down and when the stock was halted for a long time, it wasn't always possible to close your position or exercice (because of the insane borrow rates), so i believe some lost the complete put premium because the option expired before the stock was trading again. So they were right with their put positions, but could not realize the gain.

I'm not sure how it applies to a put spread.