Your theta is flatline. Your vegas are meaningless where it matters, into your short gamma risk. Does anyone understand magnitude?
Just checking in before Bed..... Double Diagonal Update What VEGA giveth, VEGA taketh away.... For those of you experimenting with the Diagonal strategy have really seen the effects of VEGA the past few days. Why just yesterday on the open.... a nice spike in VEGA created a 15% profit on the D.D., which has now fallen to 3%. In studying the D.D. position over the past seven months now... anytime you have a VEGA spike, (although it would be optimal to have it occur the last day of expiration week), within the last two weeks of the position, it would be prudent to consider profit taking and waiting to re-enter. The spike in the last 10 trading days creates great long premium to sell and your shorts have taken in some decay. Of course the conditions of the market, upcoming events, support/resistance, are also consideratons, but if you're trading VEGA, then trade VEGA. Although a couple of recent months showed profitable last week expiration profits (twice at maximum points) it's really all about playing Volatility. Certainly, a nice downside move into late September/October would be HUGE for next months position.... hint, look to enter Oct/Nov positions at these volatility levels. I don't mind monthly returns of 2-5% playing the D.D when the market moves against you and with little risk.... What's even better is knowing I'm in the 'game' just waiting for that big event to capitalize upon...... 'panic attack' It's a matter of personal style I guess..... if you hang around long enough... good things will happen. It's a matter of probability rather than probably. Murray
Rally: I left out one important characteristic in doing the call diagonals CTM when you perceive a market top or overbought condition. Since the credit could be large, ratio the position. So assume you do an ATM short strike and OTM long strike in a ratio like 75 short to 100 long (as long as there is a credit). If you are initially wrong and the market moves against you, you can move the short strike up in the same month and add the additional 25 calls to do so for a net credit and gain more space. If market keeps running higher, then roll the short strike out to the long strike month. I would like to do this with at least 1 expiration date in between the long and short, i.e. OCT EW and SEP EW so that you can roll to OCT ES if needed. I am loaded up in my current diagonal but will look into this in the future when the opportunity arises...
uh oh. As usual i misunderstood your position. I thought you meant a different diagonal, long strike first and more shorts than longs. Sorry, i have a tendency to overlook crucial details and go off talking about a completely different subject, still you should've said a backspread. Confusing your readers phil. LOL j/k I think this is a move in another direction for you, could it be a change in style towards reducing risk? Looks like you need alot of ducks to line up to make a kill. Perhaps, I am still not clear on what exactly are you playing here. Do you want the market to sit still at your ATM short strike or go through your long fast? Why diagonalize? Can you elaborate on your underlying bet?
Sure vega won't offset gamma, but my thinking is that just a 5% increase on volatility puts my break even at 1184 today and at 1195 at expiration. I should be able to get out before the tipping point (famous last words). It won't really do much for me on the upside, though. Don't understand your comment about theta, you mean relative to other greeks or that the absolute value will remain constant for the life of the position?
coach: I want to ask you about SPX credit spread. I am planning to open a bull put spread on each thursday last trading day every month, 1 hour before market close. I take as far OTM as possible that still give me a good credit (normally 15 points away) and let the options expired worthless on tomorrow friday. I did this for the last 12 months in virtual trading and it is 100% successfull without a loss. Will this a good strategy?
Rally: This is the same call diagonal that Murray and I have been trading and posting here. All I did was move the short strike closer to the money...
I am curious as to what kind of credit can you get 15 points OTM 1 hour or so before the options stop trading.
I agree 100% with that phiosophy. But... Sure we play VEGA, but in the real world it's so tempting to wait just a few more days to try also collect the huge THETA that's available. A really difficult decision IMHO. Mark