sleepless nite on WFMI yesterday stock retreated another 1$ + inspite of an up market. Not looking good and my attempt to ratio is looking worse. I've put pencil to paper this am: As of 2/11 net debt to establish the Calendar was $3100 Rolled the Long May 70 to Apr for credit of 2600 _____ net debt 550 Adjustments...selling 20 Mar 65 credit 5400 buying back the short Mar 70 debt 7200 _____ current net debt 2750 Value of current ratio diag..............................-7400 (short 20 65) +8450 (Long 10 70.. net value is -1005 Two choices...can buy back 10 of the March 65 shorts but cost would be about 3730....and if I roll March 65 to April creating a bear put on the other 10 contracts I will only net a max of 5000 (not including credit for the roll)...so after commissions the only positive value in this whole transaction would be the credit on the roll of the 10 Mar 65 which is unknown at this point. Second choice at this point is to close the whole thing for a loss of -1005 or so. I did think of possibly doing a Bear Call Mar 65/70 10 contracts but credit would only be .50 or $500 creating a kind of Iron B-Fly perfect only if WFMI ends up at 65 at march exp. not really wild about it. What is more annoying than losing money is being RIGHT on my call (WFMI would drop) AND YET LOSING money
It makes sense today to buy back 10 of my short 65's as I don't want the significant risk attached to naked puts...but will leave the rest of the calendar (now diagonal) to play out.
Filled on BTC 10 Mar 65puts at 3.5...so am taking an $800 loss...will continue with the rest of the cal/diag
Donna , what is the initial rational/edge to enter Calendar (non-event related) ? Is it a gamma , ratio , directional trade or something else ? I did couple of them before and always lost , so many adjustments [and over adjustments]
That is a great question....I'm trying to figure out. From what I've been reading a calendar can be neutral or directional. I wanted to use calendar's on stocks I'm negative on because I'm not really comfortable yet doing straight puts or put spreads. A calender can be sm loss if you are wrong on direction because of the opportunity to roll so I felt/feel reasonably safe way to play direction. Your absolutely right in that once you start adjusting and changing the calendar to a more complex spread then risk of loss does go up. I guess thats why I decided to buy back the extra 10 contracts. Also calendars are kind of commission intensive. For instance on OTM credit spreads when they work out and become FOTM you can just let them expire which does save comission costs...whereas in calendars you have all the rolls then the close which add up and eat into profits. The other calendar's I have on are actually doing well because they are not going down drastically. I will still (probably) not lose on WFMI but in hindsight BECAUSE it did come down so quickly and hard the calendar was NOT the best choice. A straight put or put spread would obviously been better....but at the time I put it on I didn't have a clue how right I would be
Personally I think there are better ways to play neutrality...such as IC's....but neutral spreads seem to work better on the indicies because of event/gap risk in stocks.....so my tendency will be to do directional strategies on individual stocks and neutral strategies on the index such as spx.
shakan and Donna , take a paper trade on MRVL RC: MAR/MAY 62.5 call for 2.1 credit , or MAR/AUG 62.5 call for 4.30 credit Not the best one , but you can see the R/R as a sample, reporting after close