Covering up your butt-crack

Quote from babutime:

So you enter into a Calendar first, then see if it goes your way for a few days, then enter into the rest of the legs?
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Basically, the nice thing about the calendar is that there is no rush so I try to let it do it's thing. The straddle may actually be even more useful when the calendar doesn't go your way.

"the rest of the legs" = a long straddle with the same amount of contracts as the calendar. Most of the time, though, I don't end up with the full TLJ. It only takes a small straddle to shift a lot of directional risk.
 
Quote from babutime:

It should be fun just paper-trading it..

Anybody with suggestions on any particular underlying at the moment? Specific strikes and lot sizes would be appreciated.
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Here's a possibility to play with:

ISRG's EA is 4/17 and its skew has opened up a bit. If it widens some more and B/A spreads in real time are more lenient, it might get interesting.

At present price, I'd look at something like an +12-10-10+12 Apr/May 540 double straddle or an Apr 540-550/May 535-555 double strangle. Widen the strikes if you want to widen your BE's (giving up maximum pft in the center). Make it +13-10-10+12 if you want a balanced risk graph. Post EA IV guess of maybe 23-25 when the dust settles.
 
Quote from spindr0:

Here's a possibility to play with:

ISRG's EA is 4/17 and its skew has opened up a bit. If it widens some more and B/A spreads in real time are more lenient, it might get interesting.

At present price, I'd look at something like an +12-10-10+12 Apr/May 540 double straddle or an Apr 540-550/May 535-555 double strangle. Widen the strikes if you want to widen your BE's (giving up maximum pft in the center). Make it +13-10-10+12 if you want a balanced risk graph. Post EA IV guess of maybe 23-25 when the dust settles.
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Yeah the risk graph looks quite juicy!!!

Thanks spindr0. I think I get the gist of this setup...
 
Quote from babutime:

Yeah the risk graph looks quite juicy!!!

Thanks spindr0. I think I get the gist of this setup...
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The morning of the EA, IV of the near month almost always drops like a rock. More often than not, the 2nd month's IV takes part of the morning to hit bottom so that many of these positions which are outright losers from 4 PM close to 4 PM close are winners in the AM if you cover the long leg on the losing side, thereby salvaging extra value. The short leg is apt to be near worthless so close the entire spread.

Conversely, if IV remains elevated, you could keep that long side open and flip the short side, selling higher value lower strike IV, converting the diagonal from bullish to bearish or vice versa (to a verticval). there are lots of possibilities and what you mutate into depends on what you want your ensuing bet to be.
 
Quote from spindr0:

The morning of the EA, IV of the near month almost always drops like a rock. More often than not, the 2nd month's IV takes part of the morning to hit bottom so that many of these positions which are outright losers from 4 PM close to 4 PM close are winners in the AM if you cover the long leg on the losing side, thereby salvaging extra value. The short leg is apt to be near worthless so close the entire spread.

Conversely, if IV remains elevated, you could keep that long side open and flip the short side, selling higher value lower strike IV, converting the diagonal from bullish to bearish or vice versa (to a verticval). there are lots of possibilities and what you mutate into depends on what you want your ensuing bet to be.
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I typically only get directionally biased calendars going into earnings. A week or two before EA I close them because I'm usually content with my profits. Because my account size is small, I trade a whole bunch on TOS. I never really thought about this new recipe with a little touch of a straddle to garnish the profits. A week or two before EA this works like a charm.

And yeah you're right, the morning of EA, I'll close my shorts assuming the IV drops which is the most likely scenario... otherwise, I'll remind myself not to panic and adjust accordingly..

I have a GOOG EA trade- 10 lots. I might even close this guy on the day of EA in the afternoon if GOOG doesn't move much... healthy profits there too. I may not even have to wait all the way till morning after EA...

This is a peace-of-mind kinda trade. I can study without worrying too much. FINAL WEEK OF SCHOOL!!! FINAL ON SATURDAY!!!

AI AI AI AIIIII!!!!
 
If you like butt cracks {_X_}, interesting possibilities with Apr/May CREE options. Month to month skew has widened another 15 BP's over the past few days. CREE's EA is 4/17.
 
spendO..I'm pretty familiar with CREE and would like to try it (sim)

CREE @ 31-32 ish

would you center it at 30 or 32? In all honesty I haven't a clue which direction it will go...so I guess its closer to 32?

+12 May 30P...-10 Apr 32P....-10 Apr 32 C + 12 May 34 C

Is that how it looks?

Problem is on Tues the 17th I only have the 1st half hour after opening bell to manage the trade so should I just focus on closing the losing side? or just let it be until the next day?

edit..I guess if your playing the vol crush for Apr you buy back the straddle on open then you can leg out of the strangle or convert to a diagonal of choice later?
 
Quote from RichardRimes:

spendO..I'm pretty familiar with CREE and would like to try it (sim)

CREE @ 31-32 ish

would you center it at 30 or 32? In all honesty I haven't a clue which direction it will go...so I guess its closer to 32?

+12 May 30P...-10 Apr 32P....-10 Apr 32 C + 12 May 34 C

Is that how it looks?

Problem is on Tues the 17th I only have the 1st half hour after opening bell to manage the trade so should I just focus on closing the losing side? or just let it be until the next day?

edit..I guess if your playing the vol crush for Apr you buy back the straddle on open then you can leg out of the strangle or convert to a diagonal of choice later?
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Who has a clue where it's going post EA? Not me :)

Yes, it's a vol crush play for Apr. You'd place it at the UL's price in order to capture the max TP (ATM).

When to put it on is another guess. IV expanded nicely this AM. It may continue thru Monday. Or not. Sometimes they contract the day before the EA.

I'd look at something like:

+13 May 31P...-10 Apr 32P....-10 Apr 32 C + 12 May 34 C

I don't know the technical reason why an extra long put balances the risk graph, but it does. Maybe someone who's more Greek can splain that to me.

If you widen the strikes as you suggested (30/32/32/34), you have insufficient long delta and the risk graph doesn't look so hot. You might have to go +14/+13. The more long straddles you add, the more you reduce the central peak profit in return for reducing the tail risk.

It's not a good idea to put this on if you can't manage it in the AM. Many of these are more profitable in the AM because the near month vol will almost always collapse immediately but the 2nd month may take a few hours. By day's end, the loss is greater.

If things go right, you end up with a profit (UL goes nowhere or really goes somewhere). In no man's land (the W's two troughs), you have choices to make... take the loss or adjust to another position. If all goes modestly well, you end up owing the long May strangle at a reduced cost and can go forward with new weekly positions (calendar writing).
 
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