Final 9/20/17

stcks:  Let's say, for example, that both pairs were the same direction (we don't know with the above mentioned Opko pair trades).  For example, let's say the pair is short 100 calls at $10 and short 100 puts at $10, and assume these are the March 2018 expiration.  And for simplicity, let's assume you collected $4 per contract on selling the puts ($4 * 10,000 or $40,000) or $40,000 into your account.  And selling the calls, at lets say $1 per contract, you collected $10,000.  

So you now have $50,000 in your account and you are short 100 calls and 100 puts.  If Opko closes at $6 at expiration, the short puts require that you buy 10,000 Opko at $10/sh, or more likely you buy the puts for $40,000.  But the calls expire worthless.  You keep the $10,000 you sold the calls for.

What if Opko closes at $8 in March.  You then gain $20,000 on the puts and lose $20,000 on the calls.  You are still ahead $10,000.

What if Opko closes at $13 in March, you lose $30,000 on your short calls, but gain $40,000 on your short puts, still a gain of $10,000.

Opko closing at $14 in March still a gain of $10,000, a loss of $40,000 on the calls and a gain of $40,000 on the puts.  But remember you collected $50,000.

The risk is that Opko closes above $14, or below $6.  So, as long as Opko closes between $6 and $14, you gain $10,000.  So this is a range play.  

Losses will occur below $5.  The break even is $5 on the downside, but at $4 its a $10,000 loss ($60,000 loss on the puts less the $50,000 collected).  But even here this isn't horrible.  Instead of buying back the short puts for $60,000, I would actually take delivery of the 10,000 shares of Opko for a net outlay of $50,000 (the shares are put to you at $10/sh, or $100,000 less the $50,000 you originally collected selling the puts and call).  So even at $4 price, you now have 10,000 shs of Opko at a net buy of $5/share, a discount to the roughly $6.30 its currently trading at.