The following is the OptionBT sighting of
"RedWood".
Go to Description Section
Title :
"RedWood"
Position Description :
Position taken :
March 18,2004
Fifteen Months out,
Vertical Bull Put Spread for Credit,
Long the 05 Jun 750 Puts (3000 cnt) and Short the 05 Jun 950 Puts (3000 cnt),
Margin required,
Short Puts out of the money by 172 points on Close (Mar 18,2004).
Expiration/Settlement :
June 17,2005 / Settlement = 1222.68
Count :
3000 pairs
Credit or (Debit) :
+$7,500,000
Margin :
For the 2000 pairs at $20,000 each = $60,000,000
Results :
Net = max potential of +$7,500,000 if all options expire worthless.
break even (if held to settlement) at SPX = 925.31
SPX SET= 1222.68 all options expired worthless NET = $7.5M
Comments : "RedWood"
We haved learned that during a rain storm not to stand next to the tallest of trees.
This is because lightning may strike. During the early part of March 2004 there
wasn't much of any kind of storm in the market place. Rates are low and there
is a lot of upside room to expand. Under these conditions it is probably not that
bad of an idea for a BigFoot tracker to go stand shoulder to shoulder with a tall
"RedWood". Anyone with this much margin ($60M) is not in a hurry and not prone to
taking a large amount of risk. What "RedWood" may be telling us is that everything
is going to be OK and let's not rush things. He is under the market now and it
certainly appears that the SPX can manage to stay above 950 given enough time.
Maybe since options trading is mostly an indoor activity the probability of a lightning
strike is greatly reduced. Let's hope so because the "RedWood" long term fade approach
is certainly laid back and very interesting to watch.
Caution:
If you take a stand next to "RedWood" don't close your eyes. If this tree runs off you need to
too.
End Game:
Congratulations "RedWood", your $60M margin brought in a $7.5M takehome. It is good
to be standing outside the box.
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