DE Short Calls

S

shazam75

Hi All
I went short calls 5 times on DE just before earnings SK90 SEP expiry. To my advantage IV collapsed however I am in the red. I was thinking of going long with 10 times OCT EXP on SK90 to cover and since IV is quite low.
What would be another possible strategy?

Thanks
Shelton
 
Buy puts in DE. I may go with Jun05 at 13 IV.

Sell 30 day puts in EXP or buy the underlying. IV is probably going lower.
 
I think going LONG 300 stock is the best risk adjustment strategy - I quickly did some calculations:


IF GOING LONG 300 stock @93.40


stock drops to $90


loss is 3.40 * 300 = $US1020-

gain on short calls = from $5.50 to 3.75 = approx 1.50 * 5 = $US750+

sold short calls at 3.00 - 3.75 = .75 * 5 = $US375-

$US645 LOSS compared to $US1200 currently sitting on


if stock gains to $100


gain is 100 - 93.40 on long STOCK (300)= $6.60 * 300 = $1980+

loss on short calls = 3.5 (at .5 delta) * 5 contracts = $1750-

current loss on short calls at $93.40 = (current price of short calls $5.5 - $3 sold calls at)2.50 * 5 = $1250-

premium received = $1500 on short calls $1500+

gain $480

I assume I keep the premium received when I went short
 
I have a bias for cutting a short options position when IV has bottomed out.

If you think your hedged just because of underlying price changes, you have another thing comming. Modeling the trade looks like short straddle when your volatility stance should be long on volatility.
 
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IV could go lower or could go higher I'm hoping it to go lower. I like the option of closing out the trade as well however looking at strategies to minimise my current losses. Off course if DE gaps lower I lose more.

Cheers
 
Well, I surely don't know where Deere is going. However, your short calls are faced with 2 probable scenarios:

1) Stock goes up and volatility goes down. You loose because of delta effect but win some on vega.
2) Stock goes down and volatility goes up. You win, but not so much, because of the inverse relationship of volatility to stock price. It will prop up the value of the call options.

Is there a win/win? Is it likely that price and volatility simultaneously go up? Extremely unlikely unless it's biotech or oil exploration faced with a new discovery.

Btw, are you making use of special, home-grown knowledge of these industries? As an Aussie, you should be diversifying away from these industries. Your economy is incredibly concentrated in the materials sector.

Show us your map O' Tassie!
 
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With Point 1 - if stock goes up and I am long 300 stock, my delta will be 1 so I gain 1:1 however the short calls only gain what ever the DELTA is say 0.5-0.6. So I am covered sightly. If stock goes down, I lose on the Long stock but gain on the short calls (my loses come down), hoping IV does not increase too much. I plan to exit all positions if stock hits $90. The best that can happen is that the stock stays relatively steady.
 
nice start - got filled for my 300 long, and stock relatively steady - not sure what happened to IV - will need to check tonight when I get home from work.
 
Congrats. The "extreme unlikely" happened today. I executed on the long puts myself, but extended to Jun19.

When the extreme unlikely happens, it is usually good to say "thank you" and take the money from the market. Volatility related trades tend to be mean reverting. I don't think the same for the single stock price series.

Anyways, I am probably not doing you any good by clouding your judgement.
 
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