The following is the OptionBT sighting of
"Black Shoes II".
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"Black Shoes II"
Position Description  :
Position taken   :
Twenty-two months out,
Vertical Bull Spread on Calls,
Long the 07 Jun 1050 Calls (500 cnt), Short the 07 Jun 1100 Calls (500 cnt)
No Margin required,
Close on the day of trade July 29,2005 was 1234.18.
June 15,2007 / Settlement = 1534.09
500 long call options, 500 short call options
Credit or (Debit)   :
Net = +$600,000 ...... June 2007 Settlement above 1100.0
Comments   :   "Black Shoes II"
For the origin of the name "Black Shoes II" see the the first example of
"Black Shoes" , sighting date 25 Aug 2004.
This deep in the money / far out in time has several interesting features.
First note that the position was taken on a large down day. This may have accounted
for the difference in the cost of this spread versus the published bid and ask.
It appears that the prices "Black Shoes II" paid for the position was about $90K less
than had he traded at the posted bid and ask. Whether this was a negotiated price or
a leg into the spread no one knows.
Another question of interest is why so far out in time? The answer is cost.
Here are some examples of the same spread at nearer months:
06Dec1050/06Dec1100(500 cnt) = $2.090M,
06Jun1050/06Jun1100(500 cnt) = $2.220M,
06Mar1050/06Mar1100(500 cnt) = $2.310M,
05Dec1050/05Dec1100(500 cnt) = $2.435M
There is another reason why these spreads say "conservatism" and that is the
safety value. If this position were to be overrun ( the market falls through the
upper strike ) then the owner of this position could sell the 1050 calls and buy the
next further out in time 1100 calls converting the position to a time only bear
Even though the SPX did dip to a close of 1176 on October 13,2005 and then
to 1223 on June 13,2006 the old theory of "buy new highs" paid off for
"Black Shoes". The call was very good and his short 07Jun1100 calls stayed
deep in the money. The net was $600k (31.5%) for his two year
$1.9M investment. That's a salary of $300K per year with some, but not
a lot, of risk. This willingness to take the long term view and position himself just
below the sweep is the reason this trader is a top performer. With two years to
make things right "Black Shoes" could have weathered much more of a storm, but as
it was the victory was just as sweet. Congrats "Black Shoes" you have done it again.
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