The following is the OptionBT sighting of
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Position taken   :
Position Description   :
1 year before Dec 02 puts expire,
time only spread for "credit",
both sides out of money by 560 points,
Must unwind position before Dec 2002 / Settlement = 891.11
400 pairs + 7 long puts
Credit or (Debit)   :
+ at least $200,000
Comments   : Time Bandit
Time Bandits are the most skillfull of all. Normally a Time Bandit will buy the
18 month out puts and sell the 1 year out puts (of the same strike) for a credit.
Then as the market
moves up the spread will narrow and the unwinding will produce a profit.
This example is a variation that is predicated on the market going down not up.
The "Time Bandit" in this example exercises with precision a variation that not
only produces remarkable results but has a twist that sets this trader into a class
On different occasions I have sighted an 18 count , a 6 count , and a 9 count
" Time Bandit want-a-be's " but none have really grasped the concept like the
pro shown here.
Some of the time bandit want-a-be's no doubt thought that creating these positions
was going to be simple and that as long as you took in money at the start then
you were home free, but that's not how it works.
This Time Bandit, though, correctly demonstrates that there is a way to succeed if you know how.
To get it right you need at least a 28 or 29 point spread
and the full year out for the short side and eighteen months out for the long side.
Our "Time Bandit" did not have an adequate point spread for this to work on its own so he
improvised his variation. The "Time Bandit" made use of the money
which the spread brought in to purchase the seven long puts.
By themselves they would have cost $357,000.
Without them his 400 pairs of puts would have brought in $920,000.
Whatever told the "Time Bandit" that the bear market was coming,
we will never know, but what is certain is that he used other people's
money all the way down.
As the market headed south those wonderful long puts made it possible to
bail with big profits at any time.
No matter how long he stays with the position it is certain that he must
unwind before settlement in December 2002. If he doesn't then he will have to
cover the short side which will cost a staggering sum of money. Most time bandits
will dump at the end of the month before settlement, so look for the "Time Bandit"
to unwind on or before 29 November 2002.(see the note on the exit below)
The seven long puts will soften the blow and even if
he has to pay a little extra to cover the shorts or take a little less to unwind the
longs he should do just fine.
"Isn't this a lot of hassle, why not just buy long puts?", you ask.
Well for one thing have you looked at the cost of one-year-out long puts lately.
Secondly how else can you :
a) not put in a dime,
b) walk with $563,000 in your pocket (only a piece of which you have to give back),
and c) do it with "no margin requirement".
This "Time Bandit" is really something special.
Although I cannot be certain, I feel that the second frame above shows the unwinding
on July 11,2002. There was an opportunity because the elephants were moving. There was a
Gap Man needing a supply of the 02 Dec 1700 puts. The fact that the Time Bandits was able to
sell off the 407 count of 03 Jun 1700 puts which he owned is somehow tied up in this although at the
moment I haven't exactly figured out how.
Remember that "cash settlement" is not an option for any Time Bandit, his time only spread
means that he has to unwind all at once or else show up with a large wheel barrow full of
In the end "T.B." spent $53,400 (this is a guess)
to close out this business.
All total our "Time Bandit" took home $509,600 as an affirmation of his skill.
We have no idea how much time and effort went into the planning phase, however we
do know that the execution was flawless.
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