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Originally Posted by ToothSayer
No not at all. It was a very easy top call, it wasn't even clever, it was just free money, which is what good traders do (if any of your trades are clever, you're not a very good trader). I don't have a clue on marijuana stocks as I don't understand the industry, but you can still spot super duper obvious spots if you're not a ******. It was an obvious short because of the size relative to the potential size of the dumb money chasing returns.
I do think its a good play but you're either drastically under thinking this or being disingenuous in how easy it is. Being such an 'obvious' play is why so many people did it at $50, $80, $120, $150, and got blown out. We hadn't had anything that extreme in most peoples careers and taking such a casual position is likely to be very -ev. Of course there was an absurd amount of money to be made in that drama.
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Originally Posted by ToothSayer View Post
You sell close to or into the money calls at the 300% vol and buy far out of the money calls so that you have 1:1 to 1.5 to 1 risk to reward, with capped losses and no margin risk. 9 days out (next week) is perfectly good. You could straight short but I can't borrow it on my broker. 80% of the time here you make 100% on that call sale as TLRY comes back to earth a little in the next 9 days.
There's a couple things here you should be aware of
- Calls in TLRY were super cheap (relative to puts). No one could sell shares against it so no one was willing to pay much to buy those calls from you.
- Those upside protection calls were super expensive. Everyone who was actively trading it knew those were the best ways to protect from most adverse outcomes.
In short, your trade was the obvious good one. Everyone smart was trying to put it on and the prices reflected that.
- The spreads at the time were insane. Markets got so wide that market makers were refusing to fulfill their quoting obligations. Eventually the max quoting width got loosened for TLRY only so it became the widest stock out there.
Your suggestion is to sell at the money calls and buy at a 1.5:1 risk rewards, I'm genuinely curious what strikes you would be trading because your strategy seems impossible to be.
When stock was at 230 you could sell a 1.5 week ATM call for $39 (assuming you had great execution), so lets start by buying the 290 for that 1.5:1 risk (your more aggressive suggestion). At the same time the 290C were trading for about $25. So your profit margin is now down to $14 so we need to adjust the long strike down to maintain that 1.5:1. If you were to buy 230 + 14*1.5 = 250C, that was trading around $32, so your upside profit is only 7$ and we need more protection, etc, etc. So it looks like you'd need an extremely tight spread to actually execute your strategy. It's a good strategy as written, there simply was no one willing to give you that payoff structure! Please help me understand how I'm wrong.
I'm being fairly generous here with prices, I'd imagine most retail brokers would probably end up screwing you on that front.