HF analyst executes options trade - what is wrong with the structure?
Investment analyst at a single manager concentrated L/S equities fund.
A couple of weeks ago I took a long position in one of the regional banks, let's assume the stock price was $100. My trade was (I have scaled all the numbers):
- bought X units of the underlying at $100
- wrote $95 strike puts over another X units (so if executed would double my long position)
- wrote $120 strike calls over X units (so if executed would negate my long and get me out)
Aggregate premium achieved was $10 for 3.5 month options, implied vol in the mid or high 40s, higher than normal.
Rationale: Bullish the underlying, take advantage of the high implied vols, happy to double down if the stock fell further (hence the put) but believed the fundamentals/sentiment would not support a price beyond $120 or thereabouts near term (hence the call). The premium would result in an effective doubling down price of $85 or exit of $130. The $120 strike calls could be rolled into $130 strike calls with maturity a further three months out at a marginal net gain (true until the stock hit perhaps $112-113 plus when I think the option deltas would misalign).
The feedback from the broker's option desk was 'not the most efficient structure'.
My question I am asking you: why?
What were they trying to sell you?
bump
Sell vol swap long underlying maybe? What did the skew look like, presumably steep?
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