NaughtyPines

GLD -- ROLLING OF SHORT CALL SPREADS

AMEX:GLD   SPDR GOLD SHARES
9 months ago
Several weeks ago, I iron condored GLD             on the notion that we would see some resistance around the 111 area. The short call spread of that original iron condor was 111/114. I stripped off the short put side at near worthless and also added to the position with a GLD             115/118 short call spread. Needless to say, 111 provided scant short-term resistance and now GLD             is flirting with breaking 120. So currently I'm left with two troublesome short call spreads in the March 18th expiry -- a short 111/114 and a short 115/118. While there is still some time for these spreads to work out, I am not hopeful, particularly with the 111/114, so I figured I'd attempt to do some house keeping here ... . (Naturally, the ideal situation would be to wait for a substantial dip in price, since I will be rolling the short call spreads out and selling a short put side against for a credit that exceeds the cost of the roll ... ).

What to do? The answer is to "putz with setups."

So I proceeded to (a) look at what it would cost to roll out both of these spreads, improving each of them by a single strike (i.e., rolling the 111/114 to 112/115 and the 115/118 to the 116/119) in various expiries; (b) look at what it would cost to roll both spreads out, but improving only the strikes of the 111/114, also in various expiries; and (c) what I can get for credit for the sale of an oppositional short put credit spread against the rolled out positions.

So, here's the plan I came up with after looking at all the possibilities: I'm looking to roll out the 111/114 up and out to the June 17th expiry 115/118 for a 1.07 debit and the 115/118 "sideways" or "as is" and out to the June 17th expiry for a .57 debit. This will essentially "merge" the two spreads into a single June 17th 115/118 short call spread. The total cost to roll these two spreads is 1.64 (assuming I can get a fill of both at these prices), which means that I will want to sell a short credit spread against these rolled out positions for something in excess of 1.64.

The June 17th 111/114 (rather ironically, since this is what the short call side of my iron condor started out at) fits this bill, as it will bring in an .82 credit/contract. (Keep in mind that the 115/118 is now "times 2," since I'm going to be merging the March 18th 111/114 with the 115/118).

The result will be a June 17th 111/114/115/118 GLD             iron condor. Naturally, were this to be an "original" setup, it would be low probability and probably qualify as "horrible." The only way it completely works out at expiry is for price to magically settle between 114 and 115 (the short put and short call strikes, respectively). However, we these broken setups, the goal isn't to roll into an ideal 70%+ probability of profit setup, but rather to gradually mitigate loss and to slowly work it into a state where you an exit one side of the trade at or near max profit, and then to exit the other in the same state ... . Of course, sometimes it takes longer than you'd like.

(A Side Note: I considered adding risk here on this up move with an additional short call spread above current price (e.g., an April 15th 129/130 GLD             short call spread currently goes for a .35/contract credit), but thought the better of it, since the jury's still out as to whether it will break 120 ... ).

9 months ago
Comment: Rolled the 111/114 up to the June 17th 115/118 for a 1.11 debit and the 115/118 out to the same expiry for a .65 debit, for a total of 1.76. I wasn't able to get as much juice as I wanted out of the June 17th 111/114 short put spread, so I had to sell the 112/115 for .82/contract. 2 times that contract = 1.64 (since I'm matching it up with two spreads), so I basically spent .11 ($11 to roll everything out and sell the oppositional side against, which I'm fine with). Naturally, it's not a great setup; it's farther out in time than I would like and it's tighter than I would like, but it buys me time to work the short call side into profit.
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