Open Interest Pinning and Butterflies

caroy said:
In some ways yes. I haven't quite figured out my explosive position - love the sound of it. Best I've come up with is using calendars with a wide spread in VXX and rolling and collecting more premium to end up with a long position in vxx calls to offset my usual short theta array of IC and flies. Not really a calendar as I sell the strike with fewer DTE above the market and buy the other one below. Really a poor man's covered call I guess. Nice pops and profits on big down move days but figuring out how many of these to have on relative to the rest of my portfolio is a mystery. And then when VXX drags lower for months I feel like I've paid for insurance that expired although relatively cheaply in the calendars. So much to learn so much to try. Thanks for the Saliba piece. Might have to read his book as well.
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  • RIOT
  • 19,20,22
  • +1,-3,+2
  • Credit $0.45

  1. Expiry below $19 = $.45 profit
  2. Expiry at $20 = $1.45 profit
  3. Expiry at $21 = $0.55 loss
  4. Expiry above $22 = $2.55 loss


Thought I would layout the OP's RIOT position for easy visualization.
 
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I'm setting a GTC order at 25% of max profit. If I'm exercised on one of the short calls I can exercise my long call at 19 to off set it and then am left with 2 short bear credit spreads. If exercised on more I can buy in the stock and and should be left with a small profit. As long as it stays OTM not a risk but the early exercise risk is a concern for this type of weekly trade but a risk that is manageable to keep any loss within the original parameters of the trade.
 
It would be a 20-22 call spread in this case. Generally i would exit and don't mind paying a penny or two above full carry to do it as it saves the assignment fees from my broker. At this point the trade would be at max loss but a max loss no higher than the original set up in the trade keeping it defined risk.
 
If you buy the 21 22. Call spread,you RR shifts dramatically..

You woukd be in the 19/20/21
1x3x2....

I always buy in the embedded short verticals..at the right price:)

caroy said:
It would be a 20-22 call spread in this case. Generally i would exit and don't mind paying a penny or two above full carry to do it as it saves the assignment fees from my broker. At this point the trade would be at max loss but a max loss no higher than the original set up in the trade keeping it defined risk.
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taowave said:
If you buy the 21 22. Call spread,you RR shifts dramatically..

You woukd be in the 19/20/21
1x3x2....

I always buy in the embedded short verticals..at the right price:)
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Very good point. I made the choice to set this up initially as a broken wing fly to collect to be able to enter at a credit and have a small profit should the stock trade away from the hoped for pinning strike. Another option in advance of Friday as a management tool would be to give up some of that credit collected and roll the 22 calls down to a 21 and would then have the risk profile of the traditional balanced butterfly (19-20-21). Something I might consider.
 
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