AMD.....DNCS (double neutral calendar spread)
I need to practice my charting so I apologize for my crude attempts at publishing ideas. This is not a new trade but it is for me. I have been wanting to try one of these but have not found the right set up. So here is the idea.......generally selling a strangle around an earnings event is a bad idea, both theta decay slows and volatility expands. However, I am hoping AMD will chop around or rise a little into the earnings event and then when the short options expire the week before they help finance the long strangle in the back month, so I need the stock to move after earnings. This trade is a DNCS (double neutral calendar spread) also called a "strangle swap" I am short the 11 put/14 call for the October 13 expiry for a .59 cent credit with 38 D.T.E. and long the 11 put/14 call for the November 17 expiry for 1.43 debit with 73 D.T.E. The total risk on the trade is .85 cents and earnings are on October 19. Implied volatility rank was only 14.5 today with some sell side pressure. I need AMD to stay within my strangle and then explode after earnings.....up or down matters not. I will have opportunities to roll or adjust this trade along the way but hard to tell the POP and such with calendars and diagonals due to the time factor. I had considered doing this from a covered position but we'll see how it goes. A johnny 1-lot in a small inexpensive stock with a neutral trade should be OK. The fact that the stock is hovering around the 100 and 200 S.M.A. may help. The debit paid is the risk of the trade......assuming I do not roll aggressively.
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I saw AMD at 14.88 AH yesterday and this morning I saw it had dropped to ~14ish. I bought 100 shares and closed the short put at 11 for .04 cents. Then I watched as it gave up all its gains and fell .35 cents more. Should have stayed patient and let the probabilities play out!!! I was thinking how lucky I was that people were profit taking and giving me a chance to cover before this thing goes back to 15?!? Lol..... now I am still long the back month, so I am protected at 11, but having paid a debit for this trade it must at least go up in the next 21 days or I will have to do some more adjusting.
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So pretty sure earnings for AMD were supposed to be this week.....well they are now Oct 24. As you can see from posts above I have butchered this trade. The stock was up a tiny bit this morning and with 1 day left to expiry I decided to roll out past earnings for .63 cents. to Oct. 27 expiry. I still have 2 more weeklies to roll to and with the stock I am now long......I either need it called away or I need to collect 3.00 is the risk from the price I longed it to my Nov. 11/14 long options. The reasons I decided to roll were 1. It was an up day 2. Want to avoid assignment fees (small) 3. Stock has been acting well. We are now only 36 days from my back month options so as the earnings event unfolds I will look to take advantage of volatility and close the trade altogether, since we are well within the theta "kill zone"
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Today I gave up half of my cost basis reduction from the call I rolled through earnings last week......and bought a 13 strike put for this week only. I can see why this trade is not all that favored unless times are really hard (like now). When you are correct for the 1st cycle (short strangle) it eats away from the back long options.....so you are kind of kicking yourself for not having just made a successful strangle trade and then hoping it will take off with little time left makes a trader worrisome. I am tempted to try to sell puts and calls against this stock to see how long it will take to reach a cost basis of 0. I am trading AMD since it has been mentioned on the Tasty Trader chat room and I feel semis would be a good future growth driver but do not know much about it other than the IV has been higher. So the decision I have to make is whether or not I will just sell the long puts if this name drops and continue to work the position or if I will exercise the put and punch out? Guess I will wait and see once the event has happened and then decide..........
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One other thing......I heard them talking on Tasty Trade today and this is a double calendar since the strikes were the same. "Strangle swap" would technically be an incorrect term. That would be correct for a double diagonal.
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So I sold the long 13 put today that I purchased for protection through earnings for a dime of profit......yes you heard that correct $10 bucks. This is why when volatility collapses, even when you are right directionally you can still lose with options. This was really to protect me if it dropped to 10 or something but looking at the trade I am wondering what I could have done better/different. Even though I successfully strangled AMD up to earnings......the back month options are now .09 and .14 which really sucks. I had the trade skewed properly (I thought) for risk to the downside on a hyped up name with the 14 call being so close and the 11 put much further OTM comparatively. The stock is down 13.5% but IVR is now 4% and options premium has all but dried up making this a more directional defense if/when I decide to take that on......will talk to TurboTech and see what he is planning.
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Today I added 2 PDS. (put debit spreads) Long the 11 strike and short the 10 out until December 15. for .34 each. With volatility so low even with the stock dropping like a stone it is hard to decide.....this will give me some time to think at least. I have not traded AMD very well at all! If I had held the collar put until today it would have more than paid for the initial trade and if I had not been scared into covering with stock I possibly could have done better as well. I am waiting to sell calls on an up day (maybe a call ratio) to get me out of this mess. I have over traded and reacted badly in this name. Might look to a back spread or put ratio when/if it keeps dropping to 10 but hard to say.....as I feel my hands are tied with the low volatility and large variance between dollar wide strikes.
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So today we finally get a little upside in AMD (up .19 cents WoW) I sold a 12/13 call ratio for .01 debit. That means I am long the 12 strike call and short two 13 calls in December......which is how log I have my protective put debit spreads. I will get out of this mess for a scratch with my cost basis now being 13 but having wasted the initial debit and wasted money to hedge. I now need this to go back up.
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AMD dropped below 10 today with 11 days left.....I am a little frustrated with the liquidity. I closed both PDS 11/10 for .73 cents because I am both at 50% and have very little time left. 35 cents each is what the actual C.B.R. (Cost Basis Reduction) as I paid a debit for these hedge trades. So basically The last 1.50 ride down in losses, I have recovered .70.......which helps but I am kind of shocked with this uber-bull market why this name is unable to bounce and let me out of my incorrect assumption? Bitcoin up, driverless cars up, Micron (was up) ---- AMD down relentlessly. I need to take a good hard look and consider taking a loss on this trade due to the fact that I looked at placing both call ratio and put ratio trades in January and both priced for debits.