Scaling Calendars in GS

[Steven Place]

The stock has seen a decent move higher and is just a touch overbought… but the play here is income calendars because of the low volatility…. the VIX for GS is around 17 and will probably find a floor here.

Here’s the Trade:

Buy to Open GS Jul/Oct 205 Put Calendar @4.00 or lower

This is Tier 1 of 3

If GS moves to either 198 or 212 we will add to the trade.

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[Steven Place]

The target price for an adjustment was 212, and we hit 211.94 on Friday so that’s close enough for an add.

Here’s the current greeks per spread:

Delta -6.4
Gamma -1.18
Theta 2.37
Vega 23.17

So as it stands, we’ve got too much short exposure relative to the theta gains we are taking in. To fix this we will ADD to the trade:

Buy to open GS Jul/Oct 215 Call Calendar @4.20

Here are the greeks after:

Delta .19
Gamma -2.52
Theta 4.66
Vega 46.53

We’re basically removing the directional exposure and doubling the theta. In exchange for this, we are adding more capital to the trade and increasing our vega sensitivity.

If GS moves to either 220 or 200, we will roll the losing calendar.

[Steven Place]

We’re going to bail on the rest of the trade.

The trade has 3 weeks left, and while there’s the potential for significant more premium, I have a feeling that the july premium is going to be stubborn. And all it takes is a move to 220 and we will have lost all open gains.

Here’s the closing trades:

Sell to Close GS Jul/Oct 205 Put Calendar @ 4.26

Sell to close GS Jul/Oct 215 Call Calendar @ 4.90

Total Gain: 96 per spread

Return on max risk: 11.7%

[Author]

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