Well I’m not entirely sure I can grasp the concept of how a Double Inverse Short fund has distributions to pay out. What are they collecting? My head’s spinning.
Anyway, be that as they pay, they paid some distributions the other day. And the options froze. Then yesterday they reopened. Looking at DUG and SDS, as best I can tell, the options on the board are adjusted to include the distribution. In other words, take SDS. The distribution was roughly $3.82 per contract. If you buy, and then ultimately exercise any of the calls on the board yesterday, you would have the right to own the stock at the strike price PLUS you get the $3.82 distribution. Likewise if you own the puts and you exercise, you owe the $4.
So clearly in order to adjust everything on the board, you need to subtract $3.82 from the strike price.
Now that’s the easy part.
These options changed their symbol from SDS to SRY. And starting today, “regular” options return, with the symbol of SDS. These regular options are just ……regular.
Same story in DUG. The distribution is $1.80. And the old DUG options are now DUD’s. No joke. The old DZG’s are now DZJ’s.
Got all that? You won’t be tested. The key takeaway’s are that option owners ahead of the news were protected via these adjustments. And the new board will look confusing, so just remember to adjust the numbers to make sense of it
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I’m confused. Back to trading just SPY,DIA,IWM,QQQQ. Don’t have to worry about counter-party risks,ETN failure,mispricing, etc. Back to basics.
I’m not abandoning my ultrashorts yet, but I also anticipate much more counterparty risk in the near future. I also hold plenty of puts (and calls on ultrashorts) and I expect trouble there at some point.
It almost seems like the master plan is to throw smoke around all these pups and have everyone walk away. It’s worked on me, I’ve done very little all week.