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Doublediagonal

Opening (Margin): IWM May 19th/July 21st Double Diagonal... for a 56.60 debit. Comments: Since my previous double diagonal in IWM was such a hoot (See Post Below), re-upping here. Buying the back month 90 delta strikes (both call and put) and selling the front expiry 30 deltas, with the result being a delta neutral setup on fill. As before, I tend to manage each side individually, so keep track of both my global cost basis, as well as side cost basis and break evens. These start out as: Long Put Diagonal Aspect (May 19th 172 short put/July 21st 193 long put): 14.17 cost basis/178.83 break even/21 wide Long Call Diagonal Aspect (May 19th 183 short call/July 21st 135 long call) 42.43 cost basis/177.43 break even/48 wide. As before, I'll look to roll out the short put aspects to the shortest duration 30 delta when the short option reaches 50% max that is at or above my cost basis (in the case of the short call), at or below my cost basis (in the case of the short put), liberally taking profit on sides should that happen.
AMEX:IWM
by NaughtyPines
Opening (Margin): IWM April 6th/June 16th Double Die... for a 57.79 debit. Comments: Doing something a little funky here -- a double diagonal. The best way to look at this setup is by breaking it down into two aspects: (a) a long call diagonal, with the back month at the +90 delta strike, the front at the -30; and (b) a long put diagonal, with the back month at the -90 delta strike, the front at the -30. I tend to manage each aspect separately, taking profit on the winning side, while simultaneously looking to reduce cost basis on the losing one, so it's important to know where my break evens are for a given side. Long call diagonal aspect: 39.42 cost basis, 169.42 break even, 44 wide. Long put diagonal aspect: 18.37 cost basis, 170.63 break even, 25 wide.
AMEX:IWM
by NaughtyPines
2
OPENING: EEM FEB/APRIL 36/41/41/46 DOUBLE DIAGONAL... for a 1.22/contract credit. Doing a smidge of defined risk, all-weather, broad market instrumentation here ... . The metrics aren't much to look at, because they aren't static,* but here they are: Max Loss/Buying Power Effect on Setup: $378/contract Max Profit on Setup: $122 Delta: 3.48 Theta: 1.9 As far as intratrade management is concerned: Look to roll out the short straddle aspect on decrease in value/realized gain for a credit to at-the-money. Since the short straddle aspect is worth only 1.80 here, you're probably going to want to wait until something approaching 25% max (i.e., .45) before burning a roll. As far as the long strangle aspect is concerned, my tendency is to largely leave it alone unless the short straddle has moved significantly to one side or the other, at which time I generally look at recentering the long strangle via rolling. Look to take profit at 25% of what you'd get were this a static iron fly with risk one to make one metrics (in this case, it's a 5-wide with a risk one to make one setup paying 2.50 with a 25% max of .63 or so) and then reset the setup anew. * -- The overall risk of the trade can potentially diminish over time on roll of the short straddle body for additional credits and/or adjustments of the long strangle aspect to maintain max loss potential (the difference between the width of the spread and total credits received).
AMEX:EEM
by NaughtyPines
7
OPENING: XOP FEB/MARCH 26/31/31/36 DOUBLE DIAGONAL... for a 1.92 per contract credit. Metrics: Max Loss on Setup: $308 Max Profit on Setup: $192 Delta: .98 Theta: 2.50 Notes: Another double diagonal, this time in the routinely high implied volatility XOP (currently 35.5%), a la the EEM double diagonal I put on earlier in the trading session. (See Post Below). I've gone shorter duration in the back month than usual in order to pay a bit less for the longs and on the notion that I will, in all likelihood, be adjusting/recentering the long strangle aspect at some point anyhow (oil, after all, can move).
AMEX:XOP
by NaughtyPines
OPENING: EEM NOV/JAN 36/40/40/44 DOUBLE DIAGONAL... for a 1.38/contract credit. Metrics: Rank/Implied: 68/29 Max Profit on Setup: 1.38/contract Max Loss/Buying Power Effect on Setup: 2.62/contract Delta: -9.51 Theta: 2.06 Notes: I've done a few of these before. The way I look at them is that they offer the flexibility of a naked, while keeping your risk defined. An additional small benefit is that you don't have to leg in and out of the longs if you want to reuse them, saving a smidge in fees, assuming that you don't have to adjust the long strangle aspect too much to keep your risk where you want it. Will look to take profit on the short straddle at 25% and then reuse the long strangle ... .
AMEX:EEM
by NaughtyPines
2
OPENING: USO JULY/OCT 10/13/13/16 DOUBLE DIAGONAL... for a .77/contract credit. Truth be told, I kind of hate USO, with XOP being my go-to for petro-based plays. That being said, with its high implied volatility rank (65) and its decent background volatility (31%), I figured I'd throw a "can't hurt much" trade on here as a demo trade for a "safety tape" setup. The basic notion of a "safety tape" trade is to define your risk with longer-dated, cheap throwaway longs, while trading essentially naked inside the longs. This is particularly useful in cash secured/small account environments where being naked invokes a buying power reduction equal to the short put strike minus the credit received and/or where brokers generally prohibit naked short calls, with the workaround being to buy a cheap long call anyway to define the theoretically infinite risk that a naked short call entails. Alternatively, it's a way for people who fear the notion of full on naked from a risk standpoint to get some of the benefits that trading naked entails (i.e., fewer legs, quicker vol crush and/or theta decay, easier rolls) without "hanging all their junk out there." (No one wants to see that). Here, the buying power effect is attributable to the widest wing of the setup (3.00), minus the credit received (.77) or 2.23, far less than you'd tie up trading the naked short straddle cash secured (basically, $1200, since the July 20th 13 short straddle is trading for about a 1.00 here). I'll look to take profit on the short straddle at 25% max as I would if I were just trading it purely naked, and then sell another ATM short straddle, reusing the longs as many times as I can before they expire ... .
AMEX:USO
by NaughtyPines
GDX SEPT 21ST 20 LONG PUT/23 SHORT STRADDLE/26 LONG CALL DOUBLEThis a continuation of a trade that started as a put side net credit diagonal. With the underlying chopping along nicely in a fairly tight range, I figured I'd add a short call aspect to beef up the credit received on roll, increase theta, as well as to smooth out/neutralize the delta in the setup. For lack of a better label, it's basically a "Calendarized Iron Fly." In a normal iron fly, all contracts are in the same expiry, with the short straddle body of the setup at the money, and the "wings" camped out in the 10-16 delta range. Here, however, I've opted to buy long-dated wings to budget the buying power devoted to the trade over time and avoid having to leg into and out of the longs, paying for them once and avoiding repetitive commissions/fees associated with legging in multiple times. The downside of doing things that way, however, is that you're paying for more extrinsic in long-dated options that, in all like likelihood, will become "throwaways." Naturally, you can go wider with the wings to lessen that effect ... . In any event, the current scratch point of the entire setup is a 1.14/contract credit. I'll continue to roll the short straddle, only instead of waiting for 50% of max, I'll roll at 25% ... .
AMEX:GDX
by NaughtyPines
OPENING: XLF June/Sept 24/27/28/31 Double Net Credit Diagonal... for a .58/contract credit. Basically, this is a calendarized iron condor or iron fly, where you roll just the short strangle/short straddle body of the setup for cost basis reduction, while keeping the long strangle aspect in place for purposes of defining the risk ... . Take profit is somewhat subjective, but I start to look to bail on the trade at >20% of the width of the wings. With short straddle "bodies," I tend to roll when the short straddle body has reached 25% max; with short strangle bodies, 50%. This is a fairly tight short strangle, so will treat it as a short straddle for purposes of rolling.
AMEX:XLF
by NaughtyPines
TRADE IDEA: IWM JUNE 30TH/AUG 18TH 128/132/142/145 DBL DIAGONALDiagonals are considered a low volatility strategy that look for volatility expansion going forward, and with VIX finishing the week in sub-10 territory, there probably isn't a better time to put one on. Here the legs of the setup are around the 20 delta strike, although a variation is to go for a small net credit where the credit received for the short options exceeds the debit paid for the longs, a more buying power heavy enterprise (e.g., the June 30th/Aug 18th 121/132/142/147, .04 credit at the mid; the put side -- the widest of the two sides -- is an 11-wide). The object is to collect sufficient credits with rolls of the short options to pay for the longs. This particular setup costs a 1.13 db to put on, so you will want to collect at least 1.13 in credits for the rolls to be able to exit the trade in profit. Intratrade, there are variations on how to work the setup: (a) Roll the short options/strangle aspect of the setup out for duration as a unit for a credit. This is probably the cleanest way to roll, as you can recenter the short strangle around current price and potentially reduce risk to one side of the setup by narrowing the width of the spread to that side. Ideally, you want to do this when the short strangle as a unit has decreased in price. (b) Treat each side as a separate trade, rolling that side's option out for duration and a credit. The best time to roll a short is when it is has decreased in value, as that as when you can lock in profit, and this decrease in value invariably occurs at different times for each side, since as one side's short is decreasing in value, the other is probably increasing in value. (c) Roll the long options/strangle aspect of the setup intratrade where it's profitable to do so and/or where it can potentially decrease risk to one side of the trade. I generally don't putz with the longs a great deal during the trade. However, it's always worth a look as to whether you should do a risk reducing adjustment, such as where a long has decreased so substantially in value that you can roll it in cheaply and narrow that side's diagonal and risk. As with all diagonals, the probability of profit and max profit/loss metrics are unknowns up front, although I look at the risk of these as that attributable to the widest side, with the worst case scenario being that price rips dramatically lower and through the long put of the setup such that the short put is substantially in the money at expiry in August ... .
AMEX:IWM
by NaughtyPines