Over the weekend, I did a post on "Zero Extrinsic Back Ratios" or "Zebras," (See Post Below), and am resetting a trade I got a smidge too impatient and/or aggressive with in GE to show how this setup works in practice with a minor twist: I'm covering it with an extra short call.
Metrics:
Max Loss: 1.96/contract
Max Profit: 3.00/contract (the width of the 6/7 or 1.00 plus the width of the 6/8 or 2.00)
Break Even vs. Spot: 6.98 vs. 6.86 (total debit paid (1.96) divided by the number of longs (2) or .98 plus the long call strike (6.00) or 6.98)
Delta/Theta: 72/.10
Notes: In my Brazilian Zebra Post, I indicated that a straight Zebra should be looked at in parts: (a) a standalone, in-the-money long; and (b) a long call vertical. Assuming favorable movement, the long call vertical would be taken off at or near max, after which the long call could be allowed to ride. Alternatively, the short call is rolled out for further credit and cost basis reduction, with the take profit reduced by the amount of credit received (e.g., if max is 2.00 and the credit received on roll is .20, the new take profit target is 1.80).
Here, I'm twisting that setup slightly by covering what would have been the stand alone long with an additional short call so that -- in essence, I've got two long call diagonals in place: a September/July 6/7 with a max of 1.00 and at September/July 6/8 with a max of 2.00. The goal: to take profit on the 6/7 at or near max and the 6/8 at or near max. Otherwise, I'll just roll the short calls out to reduce cost basis further.
An additional variation would involve laddering the short calls out in time by strike and duration: September 2 x 6 long call/July 7 short call/August 8 short call.
Metrics:
Max Loss: 1.96/contract
Max Profit: 3.00/contract (the width of the 6/7 or 1.00 plus the width of the 6/8 or 2.00)
Break Even vs. Spot: 6.98 vs. 6.86 (total debit paid (1.96) divided by the number of longs (2) or .98 plus the long call strike (6.00) or 6.98)
Delta/Theta: 72/.10
Notes: In my Brazilian Zebra Post, I indicated that a straight Zebra should be looked at in parts: (a) a standalone, in-the-money long; and (b) a long call vertical. Assuming favorable movement, the long call vertical would be taken off at or near max, after which the long call could be allowed to ride. Alternatively, the short call is rolled out for further credit and cost basis reduction, with the take profit reduced by the amount of credit received (e.g., if max is 2.00 and the credit received on roll is .20, the new take profit target is 1.80).
Here, I'm twisting that setup slightly by covering what would have been the stand alone long with an additional short call so that -- in essence, I've got two long call diagonals in place: a September/July 6/7 with a max of 1.00 and at September/July 6/8 with a max of 2.00. The goal: to take profit on the 6/7 at or near max and the 6/8 at or near max. Otherwise, I'll just roll the short calls out to reduce cost basis further.
An additional variation would involve laddering the short calls out in time by strike and duration: September 2 x 6 long call/July 7 short call/August 8 short call.
Comment:
Geez. I'm getting old and inattentive. Lol. Wanted to buy the Sept/July, but bought the August/July instead (i.e., the August 2 x 6 long calls, July 7 short, July 8 short). Oh, well. We'll deal with it "when we get there."
Trade active:
Late Post: Rolled the July 7's out to August for a .20/contract credit (on 5/28); scratch for the whole she-bang at 1.76/contract.
Trade active:
Rolled the July 17th 8's out to August for a .16 credit on approaching worthless. Scratch at 1.60.
Trade active:
Extending back month duration by rolling the August 21st 6's to the January 15th 7's for a .01 credit.
Trade active:
Rolled the 7 and 8's out as a unit to September on traverse of $7 for .22; scratch at 1.38. Will look to take off the 7/8 at or near max and then manage what is now the September/January 7 calendar separately.
Trade active:
Late Post: Missed a roll of the September 8 on approaching worthless down and back to the September 11th 6.5 for an .18/contract credit. Scratch at 1.20.
Trade active:
Late Post: Rolled the September 11th 6.5 to the November 20th 7 for a .10 credit, basically "fixing" my fat finger bass ackwards roll. :-)
Trade active:
Ugh. Missed another roll here: On 9/1, rolled the September 18th 7 short call to the November 20th 7 short call for a .29 credit. Now it's basically a 2 x Jan/Nov 7 call calendar with a scratch point of 91.
Trade closed manually:
Election/retirement flat.
