Prior to the reverse split I (rightly) predicted that the stock was going to have a rough go of it over the next few weeks. I held a C 4.5 puts. As I the stock dropped I legged into the 10/100 June 4.5-4 put spread by selling the 4 puts at .09. You may be asking, why in the world did I trade the 10/100 4 puts instead of the regular 4 put. Simple, the 4 puts was better bid, at the time I could, sell the 4 puts at .09, or sell 1 June 40 puts for .85. A difference of 5.00 of premium per contract.
At any given time there is a serious arbitrage between C 10/100 and the C Regular Options (see below):
Looking just at the 40’s and 45’s and the 4’s and 4.5’s traders can clearly see that there is edge in trading spreads, or trading individual legs. The key is traders need to do the math on getting in to the trade including commission, I do not say out, because like me traders can use the regular options to take off a trade. For those of you saying that 5 dollars is hard to cover, there are some discount brokers out there that can get a trade done for a small fee and .10 a contract, for 5.00 the trader can improve on his or her trade.
Why do I write this, most traders do not have low enough commission to arbitrage, however most traders do have low enough commission to do that math on a specific trade that he or she may be trying to enter. You may be afforded the chance to spend less or receive more when trading C options. Take the time to do the math.
Thanks to all who caught the free webinar tonight, if you want to catch the replay you can click here. You can also see April's Directional Class and March's Calendar Course.
The Trading ETF's in a Volatile Market class started today. There is still time to register and catch today's recording. Register here.
