Currently, we own July/May $250 call calendar and long May $230 puts. May puts were originally bought as May/April $230 put calendar as a hedge after the iPad announcement. I am making the following adjustment to our hedge:
- Sell to close May $230 puts for $3.45 credit
- Buy to open June $230 puts
- Sell to open May $230 puts, for $2.25 debit
In other words, I just converted long front month May out-of-money puts (which had significant loss potential due to Theta decay and reduction in IV after earnings) to long June/May calendar for $1.20 credit. Now Theta decay has turned in my favor and I am significantly less concerned about IV collapse.
Please note, I wanted to convert the hedge for net credit, that's why I chose June vs. July.
Overall, now the portfolio holds July/May $250 call calendar and June/May $230 put calendar.
Good luck!
About Me
- Fahad Khalid
- Chicago, IL, United States
- I have Masters in Business (Accounting and Finance 2003) from Michigan State University. I have been trading the market since 1998. Prior to picking up trading as a full-time career in 2008, I was a management consultant at Alvarez & Marsal and Conway MacKenzie for four years. I provided turnaround, crisis management and restructuring services to financially distressed firms. Prior to working in turnaround, I worked in Audit & Assurance at Deloitte & Touche for two years. Trading in the market has always remained my side business ever since I started college. 90% of the time, I trade through options. I love volatility skews and positive Theta plays. While I make a lot of directional bets, in general my favorites are to take advantage of high implied volatilities through calendar or butterfly spreads and vertical credit spreads. I never buy straight calls or puts and I do a lot of exotic multi-leg option trades.
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