The following is the OptionBT sighting of    "Philathro Pony".
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Title   :   "Philanthro Pony"
Position Description  :
     Position taken   :     July 18,2006
     Seventeen months out,
     Vertical Bull Put Spread,
     Long the 07 Dec 900 Puts (1000 cnt), Short the 07 Dec 1000 Puts (1000 cnt)
     Margin required,
     Close on the day of trade July 18,2006 was 1236.86.
     Expiration/Settlement    :    Dec 21,2007 / Settlement = 1474.95

Count   :                     1000 long put options, 1000 short put options
Credit or (Debit)   :     +$1,020,000
Margin   :                   $10,000,000

Results   :                   Net = potential of $1,020,000 (actual net = $215,000)

                                       

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Comments   :   "Philanthro Pony"

This is a Vertical Bull Put Spread. They are a dime a dozen. Why bother showing another one?
Sometimes a story that looks familiar may end in a different way.

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If 'PP' were to hold this position until before Christmas 2007 (over a year out) and the SPX were to close above 1000 (which it did) then 'PP' would pocket the entire spread or $1,020,000.
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Now let's look at what the volumes indicate really happened.
The market took off in August.
On the 10th of August 2006, "PP" covered the short 07Dec1000 puts (1000 cnt). The cost was $1,480,000. Since he had $1,020,000 from the original transaction this left only $460,000 of his own money which was needed to close out the shorts.

On the 11th of August 2006 the volume levels aupport the idea that "PP" found a buyer for his long 07Dec900 puts (1000 cnt) and received $700,000.
Why the delay? Why not close the transaction as a pair? What this demonstrates is the importance of remembering that when you have a deep in the money large count, with over a year until expiration, even if the premium you are asking is not outrageous, you may not get anyone to bid on it on the first try. Besides you are "asking" someone to "buy" something that is loosing value at the moment.

What originally looked like a long haul position became a quickly executed short term gainer.

'PP' netted $215,000 for this $10M Margin account.
All transactions were completed within 18 trading days.

So why take $215,000 when $1,020,000 was available (if the position were held to expiration)? It may have to do with future opportunities or maybe existing expenses. The $215k now could make a house payment. Seventeen months from now the $1,020,000 may be too late. Who knows?
There is no shame when one determines that it is time to "Take the easy money and run".
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Congratualtions "PP".
What looked like a stodgy position might well have been a prancing pony, a Philanthro Pony.

Even though it bends the rules for the BFHof, this example is included because the original position would have made. The fact that it may have been closed early with positive results adds to the fun. While $200K for 18 days effort sounds great, it does not scale down very well.
A $50k account, all else being equal, would have taken home only $500.

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