If your delta dwarfs your theta risk then that is not at all a realistic scenario. Look at how spreads would do today. You'd be looking at massive deltarelated losses. I was short the Jan31 ATM vol and took a 0.5pts hit, and stickiness worked in my favor. If I was short the spread I would be in much, much more trouble. Again, why trade spreads for theta when there are much better, lower risk structures for it? In fact if anything, I would be buying spreads (paying debit) because there would be an awesome RR to hedge with. Look at notional risk and then give me the yearly return for a spread.
Not speaking for KTM but his trade is still a good looking trade today. He has +1 1845 - 2 1825 for a net credit of 6.15...so he is in no pain before 1799 on close Friday. If he is slightly nervous he could buy the 1805 for 5.50 (last price) and he then has the B-fly for a credit...no risk trade with good potential gain. free money. Remember these types of trades are always dynamic...he could have very easily bought a put or two this morning before market tanked as added insurance/gain, OTOH with the vix a rather mild sub 14 odds of another tank tomorrow not that great. a trader trades.
your making some pretty broad (and bad) assumptions. No one (at least who knows anything about selling premium) is gonna sell weekly spreads for tiny...
Thanks Richard, I agree. I went in on two Weekly Spreads yesterday. Got 5:1 R/R on a PCLN spreads for this Friday expiry and a GOOG one for 5:1 (now) as i've lopped on a call spread to complete my IC. I closed out my call side to PCLN about an hour ago for a 0.05 Mid. took one side of the risk off the table. That GOOG $1,165 Call for this Friday is interesting... solid volume but the IV Mid is higher than the rest... watching closely.
Hi, are you playing a bearish strategy? I do not quite understand the logic of your adjustment. Also, as I checked the quotes, at 10th, the $1850 put closing price is $17.25, and $1825 put is $4.55. So, 17.25-4.55=$12.7. How can you make a 1:2 buy put ratio for $2 credit? Thanks.
Actually, if you are able to get good execution, weekly dime options (not spreads) are most likely the best sell. As a retailer, by doing this you are providing liquidity to banks and large funds that have pretty eggregious crash risk limits nowdays (their lunch is now your lunch, important to know whose lunch you are eating). Yes, the seller is short systematic risk, but as long as you size it conservatively, a 3-sd move will set you back but not ruin you.
I put on the weekly for the 17th around the first of the year. Closing prices on the 1850P/1825P for 12/31 were about 21.90 and 12.10. Moving the 1850P down to 1845P was not really an "adjustment" as much as taking cash out of the position.
Richard Rimes is correct. I hung in on Monday and made no adjustments. I rolled the 1845P in $4 increments all the way down to the 1830P, so I'm still holding the 1830/1825P. Had we seen continued weakness either overnight Monday or Tuesday morning I would likely have adjusted, but it just turned on a dime and went right back up. I took off the 2nd put a bit earlier than usual at $3 on the way back up, so I've netted around 15 points on this trade so far - another stellar week that is NOT typical at all for this kind of trade. But that's the point of doing these kinds of spreads. You may lose a little/make a little for a long time, then you hit a few weeks where you get some (relatively) big winners. When we are jolting down, you can have some down weeks as well, but if we're in an environment where we can see rising vix numbers and multi-day triple digit Dow drops - then you need to bail on this and work another strategy. At this point, I could pick up a few more points if we drop below 1830 by the close tomorrow.