Just kidding - nothing is free - and in this case what I gave up was a profit sitting there ready for the picking. But I wanted to short this security without paying for the privilege, so without actually paying (so yeah, it WAS free if you don't count the profit I could have taken that I chose not to), I got what I wanted.
Everyone who knows me knows that I'm always trying to make money off the downside of UVXY. Here are the nuts and bolts of how to attempt getting in for free:
Shorted a few days ago at exactly the price of 20.50 and also got calls against those shares at the same strike. So the math (ignoring commissions) goes like this:
500 UVXY shorted at 20.50 is a credit of $10,250
5 UVXY Oct9th 20.50 calls were 0.89 each, or a cost of $445
Should Friday the 9th come, and the need to exercise arises, and there's no way to skim anything off either direction of those liabilities, the worst case scenario would be an exercise at 20.50, so no loss or gain on the stock, and the entire option cost of $445 flies away to bye-bye land.
After turbulent Tuesday, wishy-washy Wednesday and thrilling Thursday, UVXY went down the 18.00 sliding board and landed in the sand looking at sweet seventeen. So today I decided, instead of taking a $500 or so profit that I could take (anyone thinking I'm foolish right about now? It could be true!) I decided to pursue my dream of the risk-free, cost-free short.
Leaving the shares undisturbed so as not to alert them that anything is up at all, I stealthily bought 18.50 calls for next week at the going rate of 0.96 or another $480 debit to me. Bringing in the consolation prize of just 5 cents on the previous options netted $25, bringing my new total pile of options cost to $900.
But since my new strike is 18.50, should I have to exercise next week, I'd bring in $2 per share on those shares shorted at 20.50 for a $1,000 boost to my account and a total max loss of $900 on the options, for a $100 gain overall. I consider this basically flat, or a chance to keep this short going and hope that eventually I can expand the size and widen the gap between my costs and worst-case profits. Who knows what the future will bring, but I started three days ago with nothing but an idea, and now I'm in the game for free.
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