TRADE IDEA: SPY MAY 19TH 212/MARCH 17TH 224 SHORT PUT DIAGONAL
Here, I'm looking to add some long delta to my portfolio, although it's also good as a stand alone trade in this low volatility environment. The short-dated put is being sold at the ~20 delta strike, the long-dated one at the ~15, so I'm picking up about 5.00 positive delta/contract from this setup.
Unfortunately, with diagonals, we're not able to precisely calculate the max profit/loss and break evens for the setup.
However, the net delta for it is 4.83/contract, it's positive theta (1.24/contract), and it will cost a small debit to put on (.60/$60 per contract). Because of the width between the strikes, though, it is a bit pricey to put on -- about $1140/contract of buying power effect (the width between the strikes minus the debit).
How to Work It: The vast majority of traders leave the long option in place and work only the short option, ideally taking the short off at or near max profit as expiry approaches or rolling it down and out for duration and additional credit. If taking the option off at near worthless, the notion is to "re-up" by selling a new short option in the next monthly expiry.
Some also choose to work the long option, rolling it down intraexpiry (within the same expiry) to lock in any increase in value it experiences while the trade is on. Keep in mind that doing this will generally widen the spread between the front month short and the back month and will increase the buying power effect attributable to the setup if you haven't narrowed the spread by rolling the short put down and out at some point.
As far as take profit is concerned, I take a fairly loose approach, since it will depend on what happens during the life of the setup.
Unfortunately, with diagonals, we're not able to precisely calculate the max profit/loss and break evens for the setup.
However, the net delta for it is 4.83/contract, it's positive theta (1.24/contract), and it will cost a small debit to put on (.60/$60 per contract). Because of the width between the strikes, though, it is a bit pricey to put on -- about $1140/contract of buying power effect (the width between the strikes minus the debit).
How to Work It: The vast majority of traders leave the long option in place and work only the short option, ideally taking the short off at or near max profit as expiry approaches or rolling it down and out for duration and additional credit. If taking the option off at near worthless, the notion is to "re-up" by selling a new short option in the next monthly expiry.
Some also choose to work the long option, rolling it down intraexpiry (within the same expiry) to lock in any increase in value it experiences while the trade is on. Keep in mind that doing this will generally widen the spread between the front month short and the back month and will increase the buying power effect attributable to the setup if you haven't narrowed the spread by rolling the short put down and out at some point.
As far as take profit is concerned, I take a fairly loose approach, since it will depend on what happens during the life of the setup.
Comment:
I may end up doing this in either IWM, QQQ, or DIA, as I've already got some SPY on here and don't want things to get in the way of managing those setups ... .
Comment:
No fill today; may try again tomorrow.
