Depends if you actually want to get assigned on the short option. If not then close out position at end of tomorrow. If you wait to get the stock and the market gaps against you, unexpected losses could occur. You could offset with a stock trade as you suggest but be careful of adding a new stock position and having that whipsaw on you
I didn't want to close the position today because the time premium is still pretty good like 20 - 30 cents. I probably will offset by buying or selling the underlying just before market close using market at close. I hate the bid ask spread of option price. Hopefully decimal increment in the option market will help this type of situation in the future. BTW, I have a partial hedge using Aug debit spreads in both sides, so even a big gap on Monday won't hurt me that much.
How do you manage your fly with OIH dropping to around $135 now? I really don't have any experience with it, and I like to learn risk control for each of the strategies that I will be using in the future.
Coach (and everyone else), 1) How much below the mid are you having to go these days? I'm not getting filled until $0.15 at least... 2) Do you calculate the fair value of a credit spread before you put it on? For example for AUG 1130/1140 bull put spread with a mid at xx cents, do bother calculating what the mid *should* be?
Rally, I'm continue to lean more towards the CTM approach that you employ. Tried it this month with good success. I have a question re: the type of fills you get though. I've been using a 5 pt spread approx. 20 pt OTM when i get an OS condition on my stochastic indicator. Let's say for a put call spread, say 30 or so days from expiration (a condtion that we were in two days ago with the spx at 1230), I got a fill for 1.5. Since you have alittle more expereicne with this, what are the fills you are striving for in the 10-20 pt otm range? (assuming 3-4 weeks to exp.). should I be holding out for better fills to improve my r/r?
I sold this a.m. @ 0.85. I still made a few hundo. This was my first foray into flies. I also have an $SOX fly that will go max loss tom. short @ 435 Again, it's good experience for me first fly expiry, strange beasts, they are. I'm not real big on low prob. lottery like return. I'm sure one correct fly pin will change my mind [edit: Plus I'm kinda getting sick of being short so much gamma. Hey Mo, how about's a long gamma journal? ]
I think 10-20 points is a lil on the close side but you will certainly get quicker fills. I usually aim at 20-30 points OTM and look for $1.5-$1.8 on the call side and $1.2-1.6 on the put side with 4-5 weeks out. Going closer than that doesnt give me enough reward vs the cushion lost, so thats my preference. I really dont mind not getting filled and missing a month or two. Quality of entries is more important to me than frequency.
July/August Diagonals at Expiration, July 20, 2006 Well, Friday is going to be a sailing day... so here are the numbers upon close today. I'll use 'mid' for remaining values for reference sake. Positions were placed approximately when market was at 1265ish. SET will have some effect on one position possibly... although looking like positive open for tomorrow on MSFTs earnings... etc. Position #1 STO July 1195p - $7.50 STC July 1195p - expired BTO Aug 1175p - $9.70 BTC Aug 1175p - $4.60 Profit = $2.40 on $20 margin or 12.0% Position #2 STO July 1225p - $11.80 STC July 1225p - expired BTO Aug 1200p - $13.20 BTC Aug 1200p - $7.30 Profit = $5.90 on $25 margin or 23.6% Position #3 STO July 1250p - $20.00 STC July 1250p - expired, pending SET BTO Aug 1230p - $20.90 BTC Aug 1230p - $13.20 Profit = $12.30 on $20 margin or 61.5% Position #4 STO July 1305c - $6.20 STC July 1305c - expired BTO Aug 1325c - $6.80 BTC Aug 1325c - $0.55 Loss = $-.05 on $20 margin or -0.2% Overall: $20.55 on $85 margin or 24.1% return Because position #2 was more heavily weighted in contracts, the real return was 24.8% Summary: You may want to look back at my previous post and examine how values in positions #1 and #2 changed in two days as the market moved 20pts against the positions. Our experience trading Credit Spreads over the past two years vs. trading Diagonals over the past four months has been interesting. We feel if playing volatility, VEGA, is in your market outlook plan (May-Oct), then the choice is obvious, Put Diagonals. On the otherhand, if you have a more positive outlook on the market (Nov-Feb) then Put Credit spreads tend to be the choice. If you have a nuetral or range bound outlook, then Double Diagonals (both puts and calls) would be a wonderful option. We have placed Double Diagonals for the past four months... the Puts have been the money winners by far... for obvious reasons. Pro's & Con's Credit spreads just don't allow you many, if any adjustments. Some people hedge... I look at hedging as limiting even more your position if you're right in the trade.... minus risk managment. Credit spreads, if they move against you, literally drive you insane as the potential risk-loss mounts up.... we've all been there. Call Credit Spreads do avoid the 'black swan' event as eluded to many times here.... Put Spreads though do not! Credit Spreads are easier to show and explain to someone... and the profit/loss is defined. Easy to define 100% loss. They also nuetralize volatilit. So.. if the market is screaming with volatility, as it was Monday & Tuesday, you could take advantage of this with Credit Spreads... allowing you to go further out of the money for premium. Diagonals love increasing volatility. They profit best when applied in lower volatility conditoins, expecting increases later in the month. You would not want to apply diagonals in high volatile time periods, unless you're expecting volatility to continue to increase. Diagonals do offer many adjustments... ie, butterflies, unbalanced flys, bull puts/calls, and credit spreads (without fighting b/a) and reverse calendars. Diagonals do not have a fixed calculated profit or loss per say... as your profit/loss is largely determined by the amount of premium left in the next month out. The real advantage here is... you have many adjustments or choices and your account doesn't scream RED at you. In fact, the majority of the month.... even during major market moves... your account doesn't fluctuate much. This occurs because of the dynamic movement of both months positions moving relatively the same... it's the last week, when all the premium in the short MUST dry up... while the long retains it's own Time value. You can play the diagonals as a DELTA/THETA position... but I think you'll be much more successful if you look to LONG VEGA instead. Feel free to comment... suggestions always appreciated! Murray The Grand Rapids Investment Club
Murray, Excellent work! I can see the profit on margin for these diagonals are pretty large with an average of over 20%, that I think is a lot larger than FOTM credit spreads. I found position #1 to #3 are similar diagonal puts with different strikes. I suspect you opened these positions in different time. Did you add the positions when your first positions showed a profit, or when it showed a loss? Can you explain to us how and why you add more positions to your existing positions? If you can tell us when you opened these positions (i.e. the date, the value of spx, and vix ), it will help us as well.
I assume you are keeping the long Aug positions and creating new positions with them or will you be closing them out to book your profit?