What can go wrong with this trade?

QQQQ current price is 44.34. Oversold but may still go lower.

long qqqq july 45 straddle, short June 45 straddle.

What can go wrong here?

 

It's simply a 2-lot long calendar at the 45-strike.

 

Worst that can happen is a big move in either direction losing the debit cost of the position.

 

big move up move between now and june exp, then slow crawl back to 45 as we move towards July. June gets blown out just on the move and the July is not all that protective since vol comes in and then you decay away the rest of July.

Hows that for a pretty picture?

 

Let's throw in a coupla bad adjustments as well

 

That I can deal with.

Just no IB robots closing the position at the worst moment - in case of an event similar to the May 6 crash.

 

Why the heck not there are more way to let the cat skin you then I could write about in a whole day

 

Underling moving outside of your range,
IV changing, thata.

It's in your Greeks, it is where profit and loss is made/lost.

Just a thought.

Carl

 

There is nothing wrong with the trade as long as the trader understands the equivalence. A straddled time spread is twice the exposure.

 

Front month Vol is always the most reactive. If you are wanting to be Vol Neutral, you'll need more longs than shorts. Do a weighted vega - this will be difficult because the front month is really a month of its own, little correlation to any other month. I would only make this trade if you're expecting some revision to mean from an out of line vol skew.