$Alibaba (BABA.US)$ if you guys remember I told you about a ...
$Alibaba(BABA.US$ if you guys remember I told you about a trade that I plan to do on Tesla and instead ended up completing it on Alibaba the trade I finished today so this is the full outcome remember I started this account last week with $3,000 that's it
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knowledgeispowerfulOP : what happened the first part of the transaction I did but like I said discount only had three grand to start with so when they exercise my option they put a short 100 shares on my books in order to facilitate the exercise because I didn't have the capital to buy the shares so what I did was another spread and this time I bought a deep in the money $25 strike price the same one I exercised the first time and then exercise again closing out that short position and realizing overall a $30,000 profit
Andrew Noaker knowledgeispowerfulOP: How did you buy a deep in the money $25 call. I checked Robinhood and that position is about $20k. Im just trying to figure everything out with your strategy. I'm trying to get this going this week. I'm gonna figure it out. I've been rereading your posts and putting all the pieces of the puzzle together.
knowledgeispowerfulOP Andrew Noaker: I did it as a butterfly trade I literally got in that trade with less than $25 I bought it 25 sold two 55 short and bought at 85 long
knowledgeispowerfulOP Andrew Noaker: and by doing it like this you literally get in for next to nothing and now I will have to close out the uncovered trade but right now I made nearly $38,000 cash and a hundred shares so I'll use the cash to close out the short position and keep the hundred shares
Andrew Noaker knowledgeispowerfulOP: Okay so this is what I've gathered so far, correct me if I'm wrong. So you sold 3 contracts of 240 short Put and then got assigned. Then, had 3 contracts of 280 long put from the spread. Then, sold the 280 long when I shares came in. Then, created the butterfly trade. You bought one 25 long call and two short 55 puts and one long 85 call. Had 38k in cash and one hundred shares. That would require about 45k so you used the cash and sold some shares of Baba to cover the 7k needed for the 200 shares from the short position, leaving you with 15k profit in BABA shares.
knowledgeispowerfulOP Andrew Noaker: well what I did was so deport as a hedge because they're going to give me shares when I get assigned well I had short calls that were also getting a sign so the way they do it they short the stock at current market value which was 236 that day and then they close the trade by exercising your option the following day at your strike price so they would short at 2:36 and they would close it out at $25 strike price and the difference in between the two is all profit now normally we would never see that it goes into the call spaces of your shares that's how they pay for but since I already had put options in place that were short I got to sign shares and then instantly closed out my short position on my assignment on the call side which essentially all it did was leave my long calls free to profit from with zero obligations
knowledgeispowerfulOP Andrew Noaker: I don't know if you've ever been through assignment and execution before but the way they do it they always do the assignment Friday and then Saturday they do the exercise and the reason for that is how the trade is facilitated cuz we need the short position on the books first that way when the exercise takes place it automatically closes trade and pays for the shares but in this situation you're going to get assigned Friday on both the put and the call so they're going to close each other out then Saturday you get left with just your long position being exercised
knowledgeispowerfulOP Andrew Noaker: you're close I actually didn't do the one that I posted where you buy the put this time I did it without the put cuz I didn't need it what I did instead was just exercise one of my positions the Thursday before the assignment happened knowing that I would have long shares on my books when the assignment took place which would close the position immediately and realizing a big profit because I would get paid market price of 236 rather than having the shares that I would only get the Gap in between on an option but since I already had it soon as they shorted the stock it closed it out and what I got was full market value out of my shares so it little bit different same concept this time I didn't use to put option but the one that you're speaking out that is the way I structured it originally here's a screenshot take a look
knowledgeispowerfulOP :
knowledgeispowerfulOP : just make sure just make sure you calculate your break even before you do the trade your break even is always going to be your strike Price Plus premium paid so if I paid so in this situation I think I got in for about 20,200 even though that wasn't the cost of me that was the trade's price when I entered so you would add the strike price to that of $25 per contract so that'd be $2,500 so my break-even price was $22,000 $500 that's where I would have to be in order to get paid 100% back for every dollar of those shares so the market price was actually 236 which is $23,600 so my break even was $22,500 I made $1,100 on top of the cost of the hundred shares
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