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?
Nemo aut esse modi nihil expedita. Occaecati animi inventore iste aperiam est. Amet ducimus error minima quisquam. Sed qui asperiores officia ab cumque similique et.
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