September 30, 2013 at 2:57 am #2230
I’m expecting V to go into a range after having a great run in September.
In terms of volatility, the implied volatility will most likely rise as we head into earnings, but if a range continues, then the actual volatility will stay about the same.
So if we want to be bullish implied volatility and bearish actual volatility, this is where calendars come into play.
Now let’s not be stupid and load up on a single position all at once. We’ll start in thirds, and do 1/3 of a full position here.
This is a very simple premise. If V farts around, great. If it runs to 185 or 200, we will add another 3 calendars at the new strike, and if it runs to 180 or 205 we will add another 3.
The goal here is to pull out about 20% on the trade capital.September 30, 2013 at 1:41 pm #2235
V gapped down before entry, so I’m going to start not with the 195 calendar but the 190 calendar. Will adjust on a 5 point move in either direction.October 8, 2013 at 2:55 pm #2234
V has moved from 190 to 185, we will now add to this position.
Buy +3 Nov/Dec 185 Call calendars @ 1.90 or lower.October 17, 2013 at 12:52 pm #2233
Now that V has moved to 195, we can add the final third to our calendar.
Buy the Nov/Dec 195 Call Calendar for 2.05 or Lower.
This will put us into a triple calendar.
If we rally up to 200, we will close out the 185 calendar and buy to open the 200 calendar.
Earnings is at the end of the month so we want to exit before then.October 24, 2013 at 7:08 pm #2232
As V has squeezed up to 202, we will have to manage this trade even further.
Since we are at max position, the next thing we need to do is roll the low calendar higher.
Sell to close Nov/Dec 185 Call Calendar at 0.90
Buy to open Nov/Dec 205 Call calendar at 2.10
This will cut our directional exposure by half and increase the theta gains we have.
We will still exit out of this trade before earnings.October 30, 2013 at 6:34 pm #2231
Closing out the trade here as it has earnings aftermarket and I don’t want to be short gamma into that.
Trade turned out to be a loser, but with some reversion and changes in volatility, it turned out to be a small loss.
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