Does buying diagonal staretgies work well?

[RGLD]

Well it's almost Friday. Safe to say AMD performed way above my expectations to the point where I'm hurting on the August put. I closed the 72 short put for a $5.15 profit but sold another one closer price at 75.

Tough decision to make when doing this trade. I wasn't expecting AMD to move so much after earnings. All the analyst were predicting it'll drop to $65 because it's so overbought. Me, being the optimist, sold that 72 put proving analyst will underestimate AMD but even I was wildly wrong.

If it drops below 75 tomorrow I'll roll it another week. My max loss would be a little less than ~$6, I don't know how much the 65 put would gain if were to drop to 65 tomorrow. But I know if all goes to hell, the 75 put will expire at $10 ITM before 65 put comes and saves my butt.

 

[Magic]

I trade diagonals all the time. What exactly are you asking about them? If there's a vol differential I like I will buy the diagonal and use shares to manage the residual deltas. If you expect vol to drop soon then I think a fly or vertical makes more sense. If vol is bulging buying the single is best.

Diags shine for me in that middle of the road scenario where I want to hold some vol but not sure when the move will happen. Having a short strike in front can reduce the carrying costs albeit with capping your PnL if/when you do get the move.

 

[RGLD]

I trade diagonals all the time. What exactly are you asking about them? If there's a vol differential I like I will buy the diagonal and use shares to manage the residual deltas. If you expect vol to drop soon then I think a fly or vertical makes more sense. If vol is bulging buying the single is best.

Diags shine for me in that middle of the road scenario where I want to hold some vol but not sure when the move will happen. Having a short strike in front can reduce the carrying costs albeit with capping your PnL if/when you do get the move.

I guess my basic question would be if it's better to roll your front months if you're expecting the underlying to move. Suppose I buy a put on SPY that expires Friday. I sell a Monday, Weds, and Friday as each expires. Would it be more efficient to get out of the whole thing on Monday if it goes your way, or would it be better to keep rolling it until your long expires? If the trade goes against you, you'll lose money, but if all 3 days expire worthless, the profits are higher than a standard bull spread.

I have an example of a trade with AMD posted above.

 

[Magic]

Movement is irrelevant in the direct sense. Your delta1 position can be whatever you want it to be with shares. But it is relevant in how you think it will affect the vol dynamics.

Also whatever just happened shouldn’t affect your strategy going forward imo. You always have your exposures and your bias on what will happen next.

If you think realized is going to come in under implied in the front and that PnL wil be greater than risk of vega loss on the long than the SPY diag makes sense. If we move up too far eventually your short strike will lose exposure vs. the long. Like short a 5D put and the long went 40 -> 35. If you still think the front expiry is a good sell I would sell the bull put vert in order to re-up the trade.

 

[RGLD]

Movement is irrelevant in the direct sense. Your delta1 position can be whatever you want it to be with shares. But it is relevant in how you think it will affect the vol dynamics.

Also whatever just happened shouldn’t affect your strategy going forward imo. You always have your exposures and your bias on what will happen next.

If you think realized is going to come in under implied in the front and that PnL wil be greater than risk of vega loss on the long than the SPY diag makes sense. If we move up too far eventually your short strike will lose exposure vs. the long. Like short a 5D put and the long went 40 -> 35. If you still think the front expiry is a good sell I would sell the bull put vert in order to re-up the trade.

Yes, actually on my AMD example, this is exactly what happened. My long put was at 65 and my front short was at 72. It's at 77 now, my 65 put is only worth about .40 while my front 72 is worth .07. To repair this trade I closed my 72 put for a profit and opened another contract at 77 expiring tommorrow. If this wasn't done my long would be worth almost nothing if amd goes up another day.