After lot of paper trades, successful real trades on NKE for past 3months and considerable research I have chosen this underlying for initiating double calendars which has almost similar profile as double diagonal to diversify my income portfolio.
Here is the Income trade that I have opened for May’07:
- Sell – May Put $155, May 150 Put 150
- Buy – Oct Put $155 and Oct Put $150
- ROM – It will vary as it can range from 0 to $580 on $1035 investment (by May expiration only. This will change after any adjustments or rolls). That is upto 56% for 1 month holding.
- Breakeven points – $144.49 and $163.87
Here is the risk reward curve and transation details.
This is a very market neutral trade with delta only $2.66 and Gamma only -$3.25. However, the real beauty lies in Theta > Over $8/day/spread.
Watchout: OIH is volaitile and therefore this trade may require active adjustments vs other income trades.
Profitable trading, OptionPundit
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{ 3 comments… read them below or add one }
Hi OP.
I wonder how you would manage this trade for the following two cases:
1) A quick run-up to 165;
2( A slow run-up to 165
I always enjoy paper trading some of your trades
and appreciate your willingness to share your knowledge on options trading.
nice new site design!
Thanks Jim.
Ajay, there are several scenrios in which this trade can be adjusted. Since I am positive delta a run-up will be helpful, but too quick (i.e. 1 day types) will hurt the trade adversly. One of the quickest way will to make it delta positive again and therefore I may open OOM call calendar spread. If it is a slow process to move towards, almost same adjustment but theta willl help in dampening negative gamma.