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Update on AMGN Zero cost calendar

Published on April 12, 2007

Update on AMGN Zero cost calendar

April 12, 2007

Yesterday, in my alert e-mail to OP registered users I mentioned about an AMGN calendar spread (Apr/Jan for zero cost). I was overwhelmed with the response by the OP readers. Thank you all. 

I received several enriching perspectives on why this was not possible or why this could be a loss making trade and also that no market maker will sell it for less than $0.15/trade. There was one very strong argument and that is “assignment risk” theory (i.e. as these are deep in the money Puts and hence very little extrinsic value. The market maker will soon exercise the options and the spread buyer will be assigned very quickly). 

Here is a quick update, the same spread which was selling for zero cost, is $40/spread now. Here is the “before” picture and cost:

 cost-amgn-75-cs-put.png  risk-profile-agn-75-cs-put.png

And here is today’s price of the same trade:

screenhunter_3.jpg

Profitable trading, OptionPundit

 

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