The following is the OptionBT sighting of
"Long Term Forecast".
Go to Description Section
Title :
"Long Term Forecast"
Position Description :
Position taken :
March 05,2004
Twenty-One Months out,
Vertical Bull Put Spread for Credit,
Long the 05 Dec 850 Puts (2000 cnt) and Short the 05 Dec 995.0 Puts (2002 cnt),
Margin required,
Short Puts out of the money by 161 points on Close (Mar 05,2004).
Expiration/Settlement :
December 16,2005 / Settlement = 1274.84
Count :
2000 pairs plus 2 extra naked short 05 Dec 995.0 puts
Credit or (Debit) :
+$4,508,900
Margin :
For the 2000 pairs at $14,500 each = $29,000,000
For the 2 uncovered short 05Dec995 puts = $57,039
Total Margin = $29,057,039
Results :
All options expired worthless , Net = +$4,508,900 .
Comments : "Long Term Forecast"
The "Long Term Forecast" may not be for sunshine and fresh sea breeze but this
trade has a good chance of success. This long term investment will yield about 15% on the
margin. Usually however the margin is in some form of bonds or other interest bearing
instruments which means that the 15% is on top of how the margin is being used. The
interesting thing about going this far out in time is that you have to come up with
a "Long Term Forecast". We can see that "LTF" has set down the marker that he hopes
all others will follow. It looks easy but the $14.5K margin for each pair is substantial
for us little guys. The return on each pair if they expire worthless is $1950 (using the
bid and ask at the end of the day of the trade). Again we see the big boys like "LTF" have
a little leeway in how the transaction goes down and at what price. If you examine the Last
price carefully you will see that "LTF" received the price which was a bid and ask average.
This means that the posted bid and ask were not the price he paid. It isn't a big deal. The
difference is only about $600k.
It pays to be big.
After Thought:
In hindsight the two extra puts were probably not part of this trade...
but we here at the BfHoF do not alter the data as it is found at the end of the day.
Anyway, "LTF" would have made money on them too. Twenty-one months is a long time to
tie up a great deal of margin. You would think that "LTF" would have bailed. It
turns out that for vertical spreads like this one a lot of money is left on the
table if you do that. "LTF" strikes me as the type that wouldn't let any cash go
if the margin could be maintained. Congratulations on your Long Term Forecast.
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