I wanted to do a third round of calendars, but the problem (which is a good problem to have) is that the implied volatility has continued to rise. It’s sitting at 34%, and when we started this trade we were in the high 20’s.
The major risk is the upside risk, so I am simply going to put on a hedge to get me practically delta neutral.
The hedge is going to be different depending on what size you have.
IF you have fewer than 3 contracts on, buy the Nov 110/115 call spread for 1.75
IF you have 3-7 contracts on, buy the Nov 110/120 call spread for 3.00 (I’m doing this one)
IF you have more than that, just add more size on the verticals.
What I am doing is removing upside delta risk using call spreads while keeping my theta and vega risk around teh same. If GILD breaks out to 112. The trade is protected nicely on the upside and if GILD rips to 112+ we can roll the lower calendar higher and then close out the call spread for a profit.