tjlocke99

This actually confused me. You can not trade option spreads from the Android app! Big downer!

We don't often discuss big picture economics here, but I can't see any of this ending well for "the West", be it the U.S. with its debt/deficits/entitlement programs or Europe with a myriad of problems. I do expect a 'Black Swan' at some point. The problem is, nobody really knows when right. I'm a little worried about 2013 though after the election cycle is over.

Legging out will kill you because if you adjust the price on the leg, since its a single option order, I believe IB will hit with the cancel fee.

Good post Kim. Thank you. I think your point on using monthlies over weeklies is also a great one. In the past one of the members mentioned using "GUTS" to reduce the risk, but in the limited backtesting I did, I did not see using GUTs returning a profit very often. Do you have any experience on this?

Under what type of conditions is TOS willing to give .85 per contract? Given that I feel their software platform is better, and IB is not consistently $.70 a contract, this maybe a pretty good deal with TOS.

So IB does not charge for modifying the single option order price, only actually canceling the order? I thought they charge for modifying as well?

The thought would be the weekly IV outpacing the monthly IV. If the monthlies are treated as naked though then its a dead end. There certainly seem to be better strategies. Thank you very much for your feedback! R

Could some of the senior members and/or Kim comment on this idea? Does the IV (when it moves at all) on weeklies always outpace or at least stay even with the monthlies on the earnings trades? Could you then do the opposite of a calendar and long the weeklies and short the monthlies on an earnings trade? Take this hypothetical example: AAPL underlying @ 615 let's say its 19 July and the 27 July AAPL weekly is released. Let's say we have this made up pricing: 1. 27 July AAPL 615 Call @ $10.00 2. 27 July AAPL 615 Put @ $10.00 3. 17 Aug AAPL 615 Call @ $20.00 4. 17 Aug AAPL 615 Put @ $20.00 You would do this: long qty 2 of #1 long qty 2 of #2 (creating a straddle) short qty 1 of #3 short qty 1 of #4 I am sure the theta will kill you if you don't get an IV increase, so do this on a stock like AAPL probably would not work because of the high stock price (unless your portfolio is huge). Any thoughts on a trade that could take advantage of the greater IV increase in the weeklies? Thanks!

what about doing this instead with one of the major auto stocks like Ford, GM, etc? R

what are your profit targets? thanks.

Sorry Kim I could not find my old records, but I believe you are correct. One point that Jeff Augen makes is that the OPEN after an earnings announcement can be very different then the closing price. So some of these trades may look good or bad based on the closing price, when I'd really want to evaluated the open. I never backtested double calendars. I just want to confirm. We are talking about initiating a double calendar some # of days prior to the earnings announcement and then holding through earnings correct?

Thanks!

So much for an original idea Thanks Marco. I guess my thought was there to take advantage of this distortion with options? Is there a way to do it without selling a naked short position? Selling naked calls is ugly but selling naked puts is not so horrible (which are really not naked but would be treated by a broker as naked). R

I think you caught a defect in my logic, but it just means you change one of the positions and there are a few permutations of how this could be played. It should be: long at 3:1 ratio of underlying price of SPY puts short 1:3 ratio of underlying price of SPXU CALLS A better alternate would probably be: long at 3:1 ratio of underlying price of SPY calls short 1:3 ratio of underlying price of SPXU puts I hope this makes more sense. But let's take a step back. The point is that the leveraged ETFs over any length of time over a few days will not return 3 or 2 times the index move because of daily re-balancing. Take a look at an historical chart on the S&P or other index vs a leveraged ETF. Is there anyway to SAFELY play this distortion? You can't short any of the leveraged ETFs I know but you can long and short options.

I could use some help on this thought experiment. There are ALOT of 2 and 3 times short and long ETFs out there now. http://etf.stock-encyclopedia.com/category/short-etfs.html They typically very much underperform the actual index they match over any length of time because of the daily re-balancing they have to do. For example from the Proshares site: "Each Short or Ultra ProShares ETF seeks a return that is either 3x, 2x, -1x, -2x or -3x of the return of an index or other benchmark (target) for a single day, as measured from one NAV calculation to the next. Due to the compounding of daily returns, ProShares' returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period. These effects may be more pronounced in funds with larger or inverse multiples and in funds with volatile benchmarks. Investors should monitor their ProShares holdings consistent with their strategies, as frequently as daily. For more on correlation, leverage and other risks, please read the prospectus." SO what I am thinking is, is there a way to: Long a bear ETF on the index AND then short the 3x bear in a 3:1 ratio (let's say for a month) or long a bull ETF and then short the 3x bull in a 3:1 ratio? Since they are not the same symbol though any short position, whether directly in the underlying or in a naked short position would likely NOT be treated as a hedge by your broker right? Here would be a sample: Right now on 6/22 @ 0011 ET SPXU is at 51.68 July 51 Put Bid/Ask is: 2.65 / 2.90 SPY @ 132.44 July 132 Put Bid/Ask is: 2.46/2.54 so 3 SPY positions would be roughly equivalent to 8 SPXU positions (3 * 132 ~ 396 and 8 * 51.68 ~ 410; you could get closer by changing the quantities a little here), but you need the 3 times the coverage so you do 9 SPY and 8 SPXU contracts. so lets say you did this: short 8 of the SPXU puts @ 2.77 ea = 22.16 credit long 9 SPY puts @ 2.50 ea = 22.50 debit net debit = 0.34 so then you hold. theoretically the SPXU underperforms the SPY. If SPY crashes your covered with your long SPY positions. If SPY goes up quickly you may break even again. If SPY moves slowly in any direction or stays flat you profit. Now their are obvious problems with this specific trade, including what I said about the broker and seeming naked on the SPXU. HOWEVER perhaps there is a different way to play this? Any thoughts? Thanks!

Chris, Are you talking about holding this through earnings? Doesn't this fall into the category of "profiting from IV collapse"? Since we don't want to sell a straddle going into earnings and be naked on short positions and ICs often don't work because the OTM strikes are typicall not liquid on most stocks we are looking for another way to play this? I had backtested using a calendar straddle on GOOG and AAPL. That is sell a near month straddle and long an out month straddle. The results were around breakeven without commissions however there were some huge losses, so I was not comfortable with the trade. Is this what you are thinking?

Thank you everyone for this input. We have had some long threads about hedging, but I did not like the SPY put ratio play and was looking for an alternative that would give me partial coverage. Thank you again.

Good morning. Is anyone still doing the DITM diagonals with VXX leaps and if so how is that working? If one was to enter the trade now what strikes and expiration would you recommend? Looking for something else to slightly protect against a making market drop. Thanks! Richard

Chris - did you make this some type of ratio trade? What about Eugene's question about being assigned? Also, you may want to be careful with this apple developer conference coming up. You could see some large stock moves from it.

What is wrong with option #5? I'm not sure about the 575 strike or how a double calendar would work with weeklies though?

thank you kim and chris for your responses.

One more completely unrelated topic Chris. How are you maintaining a full time job and this much trading analysis with a new baby! Usually there is no such thing as "free time" after having children!!!!

what about wider strikes but 10 points between the wings? i know it makes the max potential loss around $850 as opposed to around $350 with the trade kim recommends. as i have been looking at ICs lately i have been more looking at the price difference in the wings rather than std deviation. for example some wings seem can actually be further out and have nearly the same price difference and thus provide very similar credit with less risk. also sometimes due to market sentiment the puts or calls at the same strike distance can be very different prices. chris - do you see that as an edge or do you feel the market is predicting a rise or fall when the puts or calls are more expensive for similar strike differences from the underlying price. a made up example: SPY @ 132 122 JUL PUT $1.15 142 JUL CALL $1.00 the put is still 10 points away but fetches a larger price.

kim - i really don't get how the RIC hedge affects the P/L? couldn't purchasing a weekly RIC essentially make the trade safer but also create the likelihood of no profit plus alot of commission fees? i have alot of trouble "visualizing" anytime we sell weeklies because the P/L graphs don't seem to tell the whole picture. R

Chris, why wouldn't you re-open the trade with the long June's closer to the ATM strike? Is it because there is now only 4 weeks to expiration on the monthly?