OPENING: XOP APRIL 21ST 33.5/JUNE 16TH 30 PUT DIAGONAL
... for a .03 db.
At its outset, you short put is basically completely "financing" the cost of your long put (but for the $3 it cost to put the trade on). Your goal is to roll the short option forward for duration, collecting credits along the way and to exit the setup for a debit that is less than what you collected in credits (as you would do with any credit spread).
Unfortunately, the metrics of such a setup are indeterminable, although it does cost about $350 in BP to put on. A number of things can potentially happen during the life of the setup, and the credits received for any roll of the short put are unknown.
Basically, however, I'm going to work the short put as I would a naked, but with the benefits of the long option keeping the risk defined ... .
At its outset, you short put is basically completely "financing" the cost of your long put (but for the $3 it cost to put the trade on). Your goal is to roll the short option forward for duration, collecting credits along the way and to exit the setup for a debit that is less than what you collected in credits (as you would do with any credit spread).
Unfortunately, the metrics of such a setup are indeterminable, although it does cost about $350 in BP to put on. A number of things can potentially happen during the life of the setup, and the credits received for any roll of the short put are unknown.
Basically, however, I'm going to work the short put as I would a naked, but with the benefits of the long option keeping the risk defined ... .
Comment:
No rolls/adjustments. As long as the short put isn't being tested, just going to let it decay into expiry ... .
Comment:
With the short put of this setup approaching worthless (last time I checked, it was at .08), I can do one of two things here: (1) buy the whole thing back for a .17 credit here (which would be my profit on the setup (yipppeee!)); or (2) roll the short put out for an additional credit. I'm going to do the latter, since, for all practical purposes, the long put is basically "paid for." Currently, I'm looking at rolling out to the May 5th 35.5 strike for a .44 credit; this is the 30 delta strike, about 30 days out.
Comment:
Rolling April 21st 33.5 short put to May 5th 35.5 for a .44 credit (filled at open). Lather, rinse, repeat ... .
Comment:
Covering the May 5th 35.5 for a .43 db here (too close for comfort) and selling the May 26th 30 DTE 34 put for a .47 credit.
Trade closed manually:
Covering the May 26th 34 put for a .46 db and closed the June 16th 30 put for a .15 credit. Really small winner ($18 gross) ... .