Protecting a DITM call spread

xandman

xandman

Position: ES Option 2200-2260 call spread, 8 DTE

I would like to solicit advice on protecting a deep in-the-money call spread. The position has accumulated a maximal amount of deltas. The market is ranging, but a quick move down can erase a lot of profits.

The short call is ATM and bleeding major theta to my advantage. How would you hedge this position?

Thanks.
 
Any put buy is going to cost more than the remaining convergence value. Alternatively, you could write the ATM 2260/2320 (2x1) call vert to fly it off. Or buy thr 2230/60 put vert?

The 2200/2260/2320 call fly is marked to 32. I assume that you're up maybe 10-15 in the vert? Do the fly and mark your cost-basis and watch it. I would rather have the 2200-2320 call fly from a 20 cost-basis than anything else you can do here.

What is your marked PNL (pts) in the vertical?
 
destriero said:
Any put buy is going to cost more than the remaining convergence value. Alternatively, you could write the ATM 2260/2320 (2x1) call vert to fly it off. Or buy thr 2230/60 put vert?

The 2200/2260/2320 call fly is marked to 32. I assume that you're up maybe 10-15 in the vert? Do the fly and mark your cost-basis and watch it. I would rather have the 2200-2320 call fly from a 20 cost-basis than anything else you can do here.

What is your marked PNL (pts) in the vertical?
More...


I like 2230/60 idea because of the skew.

PNL was about 15 pts when I capped it with the 2260 which is at breakeven.

btw, welcome back.
 
xandman said:
I like 2230/60 idea because of the skew.

PNL was about 15 pts when I capped it with the 2260 which is at breakeven.

btw, welcome back.
More...


How about owning the fly at a 18 cost-basis with seven days to go? New position; massive upside on PNL. Easily a double from here.
 
Hey, @destriero is finally making some sense ;)

Your main goal is to hedge your delta, if you want to keep the short ATM, then you should trade soft (options) delta's against it.

There's only about max 9 left to be made on your position...

If you want to reduce risk, trade that 60-30 PS at about 6.50? That way you are basically left with the short 2200-2230 PS... Less risk than now. But, you're not gaining anything in potential really.

The fly sounds good, but that does increase your risk. If you want to go this way,
The 2260-2320 CS is about 12... Why not sell the 2260-2320 CS Jan27th in stead? That's about 9 and expires earlier... and you could do it again in 3 days if it works out. Bit more management work...

But they all increase your position, except for your delta's.
 
2220/2260/2285 is close to neutral and has me fairly protected from a Trump rally.

upload_2017-1-23_21-42-19.png
 
Anyway, my (00/60/20) fly from 18 (17.5 cost-basis, 32.5 marked) will beat the "box" (00/60C + 20/60 or 30/60 long put vert) on marks and terminally. Open to bets on the terminal PNL.

The idea of a true box is silly (not knocking anyone here) unless microstructure would force a large edge loss on the 00/60. You can easily dump the incumbent spread for a buck in edge loss.

DO NOT buy the put spread if you are worried about a rally. I don't think it's wise to force a hold to expiration with the put-vert as the thing has no gamma until the last two days.

A week hold for $7 bucks? Dump it or fly it.
 
Last edited:
Uhm... who's trading a box? 00/60 CS long and 30/60 PS long = just a short 00/30 PS...

And of course your butterfly has more potential when we stay put at 2260, since your collecting more theta... but you've increased the risk since you don't want any moves at all.

@xandman, do you want less risk or more risk/similar position? Or a completely new position with flat delta to start?
 
I don't think a long butterfly has that much potential compared to the risk... I mean, the straddle is less than 1%... That's not that expensive...
 
destriero said:
Anyway, my (00/60/20) fly from 18 (17.5 cost-basis, 32.5 marked) will beat the "box" (00/60C + 20/60 or 30/60 long put vert) on marks and terminally. Open to bets on the terminal PNL.

The idea of a true box is silly (not knocking anyone here) unless microstructure would force a large edge loss on the 00/60. You can easily dump the incumbent spread for a buck in edge loss.

DO NOT buy the put spread if you are worried about a rally. I don't think it's wise to force a hold to expiration with the put-vert as the thing has no gamma until the last two days.

A week hold for $7 bucks? Dump it or fly it.
More...

Understood. 3 days of incredible stillness is also a really good reason to cut bait. But, DITM commonly occurring position so the position transformations you mentioned will come in useful over several iterations. I sometimes end up with ladder spreads, but it is unlimited risk.
 
You must log in or register to reply here.
Back
Top