Diagonal not working.

F

fxintruder

Hello everyone,
I am new to volatility trading and have a question about a diagonal spread, if someone could help. Here is the trade:

Opened the 24th March . instrument: Lulu. earnings the 27th BMO. Spot: 48.35
-10 april19 50 call 2.73
+10 May17 55call 1.51
The day of the positionning IV30 was 61.2% (LVX) and HV 34.78.
That day on the skew chart April 19 vol 61.72 and May17 vol 47.12%
After positive earnings spot: 51.98
Today IV30 is 40.50% and HV 35.41
Apr19 IV 42.03
May 17 IV 35.15%
The position is losing money right now.
The questions are :
1: Is the IV crush not enough to compensate for the rise in the equity ? (position not delta hedged).
2: How these earnings strategies can work, since vega on the front month is low (less sensitive to vol movements)?
3:If th eproblem is position not delta neutralized, how to do it since you find yourself with a huge gap at the opening (BMO release)?.
4: Can gamma be incriminated even tho the short call is OTM?
Thanks if one of you might help.
 
Were you long delta or short delta at inception? Are you long delta or short delta now?

Were you long vega or short vega at inception? Are you long vega or short vega now?

If you start with your initial risks and look at your current risks you will have a sense as to why your pnl is negative.

(That's how you would fish).

(Here is the actual fish)
I had the opposite trade on except in different maturities. I was long delta and got short vol as the stock rallied. I just under doubled my premium, primarily from delta gains.
 
thanks for answering neww.
Actually I didn't check the delta/vega at inception, and can't seem to find it on the platform. I won't forget it again. Now it's -283 delta and +18 vega.
The delta position has and probably had a directional risk, the vega not that big?

By being in the opposite side were you short the back month? IV was pretty high on the front.
 
fxintruder said:
thanks for answering neww.
Actually I didn't check the delta/vega at inception, and can't seem to find it on the platform. I won't forget it again. Now it's -283 delta and +18 vega.
The delta position has and probably had a directional risk, the vega not that big?

By being in the opposite side were you short the back month? IV was pretty high on the front.
More...

Now the question is are you still bearish and do you think vol will go up? You have two legs, so the relative vols matter as well.

Model it up in excel. Its tough to trade views like this without running your own models in excel (even if they are rudiamentary)
 
Also, the vol crush is fictitious. Implied vols come in when an stock goes ex-Earnings; but that's because the market expects a large move. You have to have the view that the earnings move implied by the implied vol crush is > the actual earnings move.

In this case it was about 10% and the stock moved almost 9% to it's high.
 
newwurldmn said:
Now the question is are you still bearish and do you think vol will go up? You have two legs, so the relative vols matter as well.

Model it up in excel. Its tough to trade views like this without running your own models in excel (even if they are rudiamentary)
More...
I don't think vol will go up since the equity is rising and the earning catalyst is vaning, but I see that I am not in such a position .
 
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