Truth be told, I'm not a big fan of low vol strategies such as calendars and diagonals, but am going to putz with one here.
From a trade management standpoint, the notion is to take off the short call at or near worthless or roll it to the Jan expiry for additional credit, resulting in a Jan 20th 136.5/140 short call vertical. You then manage the setup as you would any credit spread.
As with calendars, this particular setup doesn't have a set profit potential; the profit will entirely depend on what occurs with price and whether volatility expands. However, the front month, short option's theta will decay faster than that of the back month ... .
Filled for a .01 db.
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Did this yesterday (Wednesday): Rolling Dec 16th 136.5 to Dec 30th 136.5 for an additional .30 ($30)/contract credit.
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Rolling: Dec 30th 136.5 to Jan 6th 136.5 short call for a .19 ($19) credit. The roll's more about locking in the decrease in value experienced by the short call more than anything else. I've got two more potential rolls I can do: to Jan 13th and then to Jan 20th, so I have to use them "sparingly."
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Just couldn't help myself. Rolling the Jan 6th 136.5 short call to the Jan 20th 137 short call for a .23 credit. The result is a Jan 20th 137/140 short call vertical, which I will look to take off at something north of 50% max profit.
Calendars are great. I do these sort of diagonals / calendars a lot. Though I strive to end up with a free or near free debit vertical in the end. Credit spread you end up with will not have enough credit collected to justify it, in my opinion.
NaughtyPines
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@baerrus, That's a very interesting approach -- rolling toward a "free" setup. So do you go with the front month and back months a greater "distance" apart? Back month a mere month out from front month appears to be a bit tight in terms of rolling opportunity (at least for me).