Banking crisis, global bank run and interesting stuff and one of the attractive trade in this whole fiasco currently I think is in FRC.
The whole trade is based on the notion that FRC won't go bankrupt. If it does, then you most likely are gonna suffer a loss (I say most likely, because it's still probable that you might come out ahead).
So, the premiums on FRC are pretty high(as expected).
31 March $12p is selling for around $3.
Which means if you sell contracts, you receive pretty good premium.
Now, you let the game play out. Your base assumption should be that it's going to breach your price and you will have to exercise.
Well, you let that happen. Now your base stock price is $9.
Now, you buy some protective puts (which are likely going to cost less than the current premium, how much exactly, no one knows in this volatile conditions).
And, you sell calls (which has a pretty high premium too) and keep on collecting those juicy premium.
So, basically, you risk nothing (massive lol), but have a probability of good gains.
Now, what if your base price isn't breached? Well, then congratulations, you made out pretty good already, move on.
What if it goes bankrupt? Well, let's just hope there's more than enough liquidity for you to allow your trades to occur as planned.
What if this... what if that? Think about some scenarios yourself, and understand the risk.
It's an incredibly risky trade, especially concerning the liquidity and stuff and that's why it's appropriate for WSB. But, understand the risks before you get into the trade.
Here's a 1 contract example:
Put options sold at strike of 14.
At 4.3 which means loss price would be 9.7.
Max loss 970(theoritical).
Now, if FRC goes below 14, allow it to exercise.
And then base price of stocks would be 9.7.
Now sell call options at high premium to reduce cost basis even further.
If premium received is 2(based on current IV structure), then base price is 7.7.
Hedging costs are likely to be 2.5(based on current delta and gamma structure), so that makes base price of 10.2.
Net gain (probable)= 4.3+2-2.5=3.8. or 380 usd.
Loss chance: 0 usd (if strategy is executable, if there is no liquidity, then that's gonna turn into a max loss scenario).
Conclusion: almost free money glitch here. Get 380 usd, costs you 0 usd.
NB: there's always risk, in which case you incur a liability of holding 1020 usd of stock, and your loss would be the price you can sell it for - 1020.
Say, you sell for 800
Then, you still make money. Around 180 usd.
Which is still unlikely to be high.
max profit: no one knows. It could be even 3-4k usd (try to figure out my line of thinking).
But most likely is around 200-400 usd per contract.
So, no risk, only gain in my book.
Will FRC go bankrupt?
-It's one of the well run banks with good profit margins in the past, has got backing if $30B in deposits from other banks(which is unusual and might seem like a sign of distrust, but think about it, banks like JPM, GS putting there money in a rival, with almost no monetary benefits, for me, it sounds good, although others might say, it's just the banks wanting to stop the contagion), has got $100B+ backstop from FED.
Plus, I don't see it likely that the US gov will allow another bank to fail, especially one like FRC.
PS: It's a highly volatile stock and a highly risky trade apt for the degens. Before you enter, understand the risk. Not financial advice. The numbers I used already got outdated before i finished writing it. xD