Income Calendar in BA

[Steven Place]

Stock is up big on earnings and is on the 2nd day of its parabolic move. It has the potential to move higher but odds are it’s due for reversion or at least a range.

Going to deploy some scaling calendars here. The main issue I see is that implied volatility is still quite high considering earnings are out of the way but I think the other greeks (theta namely) will make up for any vega losses.

This is a scaling trade so go in 1/3 size here with plans to add if BA closes above 146

Buy to open BA Mar/Apr 140 put calendar for .80

[Steven Place]

BA has been above 146 for a while now, I haven’t adjusted yet but this gap down is giving us an opportunity to add another round here.

Buy to open BA Mar/Apr 150 put calendar for 0.93 or lower.

[Steven Place]

Implied volatility is continuing to come in, and the stock got a second wind and has gone parabolic once again.

That leaves our position with drawdowns due to the big move higher as well as the drop in implied volatility.

There’s a million possible adjustments here, but it’s going to be easier to close it out. Let me step through some of the possibilities and why it’s just easier to bail.

First, I looked at rolling the 140 put calendar to the 155 call calendar. That roll would cost another 0.70 in capital, and would drastically tighten the breakevens. The Breakevens would shift from 135152 to 147156. It doesn’t really add a ton of padding. And yeah, you could go out to the 160 call calendar, but the “tent” of the double calendar basically collapses and you’ll be stuck waiting for theta that may or may not come.

The next adjustment I considered was to buy some upside hedging, something like the April 155 call. That still gets you theta positive and allows for a squeeze higher… if that squeeze would come, then you could close out the calls and then use those profits to better roll the trade. This cranks up the trade in complexity and requires you to try and time the stock really well.

The third adjustment I looked at probably would work out if you waited long enough.

It would involve rolling the Mar 140 put to the Apr 145 put, to roll the Mar 150 call to the Apr 155 call, and to roll the Apr 150 call up to the Apr 160 call.

That would morph the trade into an April iron condor with short strikes at 145 and 155. It would be a lower probability iron condor, which means if BA continued to squeeze I’d have to roll the call side higher again.

Here’s what that adjustment would look like:

In theory it would work, but it requires to get stuck in the trade for at least another 3 weeks, and it’s VERY commission intensive.

That’s why I think it’s just easier to close and move on. It’s at a very manageable loss and it’ll free up capital to move onto other trades.

Sell to close BA Mar/Apr 140 put calendar @0.49

Sell to close BA Mar/Apr 150 put calendar @1.03

The trade will finish with a -12% return on max risk.

[Author]

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