tjlocke99

Thanks for the response Kim. I know there will always be some sort of risk. I really meant a position that can minimize theta risk, require limited attention, and protect your portfolio with some gamma exposure. What about some sort of short butterfly? What about a short butterfly that is X days out and that is on the sector that you need coverage in? For example, if you are doing a calendar on Citibank you could do a butterfly on a financial etf, maybe one that is 60 days out or so? Any thoughts?

I share your opinion in your first paragraph. As for the trade, you can trade XAU directly right? If you can't trade XAU then I don't know how you could structure any trade that wasn't completely speculative. For example if XAU and GLD are showing high correlation/cointegration and they diverge for a week let's say with GLD increasing at a greater rate then XAU, then you could buy an OTM GLD put and and OTM XAU call and hope for them to converge. HOWEVER, again without being able to trade XAU I'm not sure what you can do. Let me know what you find.

Good morning. I have mentioned in the past that the earnings trades do not really work for me because I have a full time job and can't create and monitor the orders during the day. I have been doing some of the theta based trades on a very small scale such as calendars, long butterflies, diagonals, and ICs. HOWEVER, I don't use much of my portfolio because of the potential for very large losses. On SO, you balance your theta trades with some vega and gamma trades like the earnings straddles/strangles/RICs. Again I can not effectively use these trades for balancing. Does anyone have any suggestions on a vega/gamma trade that could be opened for a week, weeks, or a month and not so heavily managed, but provide protection in a large market move? Obviously I'd want to minimize theta decay. Thank you!

Thanks Kim! One concern I have is the trade could easily lose 80-90% of its value if there is a huge move. However that is true of any theta based trade.

Hello my SO friends. I want to float a new potential earnings strategy leveraging an old article Kim posted on Apple many moons ago. I also want to let you know how much I appreciate all the help I have received on this forum over the past 6+ months. The idea is around 1-2 weeks before a stock is going to report earnings you long an option that expires after the earnings date and short an option that expires before the earnings date. Obviously this will only work for certain stocks at certain times of the year and works better with stocks with weeklies. Additionally I like the idea of getting in the position on a Thurs and exiting around a Tuesday to capture that theta decay with less gamma risk. Does anyone have any experience wit this? I tested GS for a few periods and came up with the following results. I rounded the profit DOWN a few percent because I really am beginning to think its rare to see fills at or very near the mid-point unless the option is extremely liquid or you get a little lucky. All positions were opened on a Thurs COB leaving 8 days until the short would expire and around 15 days on the long (normally I'd probably open them during lunch Thurs because that's the only time that would work for me and because there is probably some good theta decay that afternoon as the MM's adjust the weekend theta into the price). All positions were closed on the following Tuesday thus holding for 5 days. Tuesday was not the day of highest profitability. Its just a rule I set to make the testing easier. GS Earnings Report Date: 7/17/2012 BO 7/5 stock closed at 95.92 Long JUL 95 Call Short JUL2 95 Call Net Debit: .95 Close 7/10 at +22: ~ 20% gain after slippage -------------------------------------- GS Earnings Report Date: 4/17/2012 BO On 4/5/2012 the stock closed at 118.00 On 4/5 enter the following double calendar (to not be delta negative or positive) Long 120 Call / 115 Put Apr 20 2012 Short 120 Call / 115 Put Apr 13 2012 Net Debit: 2.13 Close on 4/10 at +.34: ~ 12% gain after slippage -------------------------------------- GS Earnings Report Date: 1/18/2012 BO On 4/5/2012 the stock closed a 94.58 Long JAN95 Call Short JAN2 95 Call Net Debit: .98 Close on 1/10 at +.22: ~ 20% gain after slippage I DO NOT KNOW WHAT THE MARGIN REQUIREMENT IS ON THESE CALENDAR TRADES, BUT I THOUGHT THERE WAS NO MARGIN REQUIREMENT BECAUSE THE MAX LOSS IS THE FULL DEBIT RIGHT? Therefore I calculate the P/L based on that debit amount. NOTE: I know the Profit will be lower because I don't think you can get good fills near the mid. That is why I accounted for a few % of slippage. Obviously this very LIMITED testing, but I am floating the idea in case anyone wants to help test or in case anyone has experience. Thanks and Merry Christmas and happy holidays!

Is it a good time to enter into a longer term SPY short butterfly or something like that? Also Chris, you could take the lower margin requirement and put that cash into a Reel Ken style high dividend blue chip long stock with one of his insurance schemes. The more I look at his scheme and my failed attempts to beat that ROR using options, I am thinking maybe his strategy is just the way to go on everything I am also looking for a trade to cover a black swan (a black swan that is for a market that moves very quickly up or down though).

Great point Kim. How is it the earnings trades are doing so well lately then?

Good point on the spread. I guess you'd have to use a stop limit? Even so, on an option spread is the stop going to be triggered on the bid/ask midpoint?

Chris, I never took the positions I referenced. I gave an example. No. I listed 2 potential long positions. The DITM strangle you have been purchasing vs and OTM strangle that I am mentioning in this post. The point is what the responses to this thread having been saying. The theta decay is the same on that ITM and OTM strangle. The ITM strangle is only raising your capital requirements. I also didn't not reference a naked strangle in my example. I essentially listed a double diagonal only it is reversed because the far dated longs are actually further OTM than the shorts. Its like a modified IC. I have no idea what you call it.

I'm sorry if I missed this info somewhere else on the site, but does anyone know if there is way to set a stop loss or stop limit on an option spread? Thanks!

Chris, I think Marco schooled me on this a few months ago, but I don't see the advantage of the using deep in the money approximately .80 and -.80 delta calls and puts as the long position. What is the advantage of this versus going out about 2 months and purchasing a .20 delta long call and a -.20 delta long put? Let me give you an example. When I look at Goldman Sachs on 8/30/2012 I see: GS @ 104.72 I know that GS reports on 10/16/2012, so I go long the Oct strangle which expires on 10/19/2012 giving me some vega protection. I go long: Oct 115 Call / Oct 95 PUT for $2.49 Oct 95 Call / Oct 115 Put for $22.50 They both have a negative theta of around $.07 a day at this point. I then short that week the Sept1 12 110 Call and 100 Put for a credit of approx. $.60 Early in the week you are up, but GS makes a huge move that week. On 9/5 its at $109.94 (you are actually profitable on 9/5) and by 9/6 its at $113.54. This is an almost $9 and 8% move in less than a week. Guess what. On 9/6 here is how you sit: Oct 115 Call / Oct 95 PUT you paid $2.49 is worth approx. $140 Oct 95 Call / Oct 115 Put for $22.50 is worth approx. $137 Your short is worth -$299. My point is how have you added protection by going DITM? All you are doing is adding capital outlay and thus decreasing your rate of return. By the way, in this example, hopefully you exited on 9/5 when the stock made a 3+% move and you'd still be profitable and live to fight another week. I think if anything I'd rather double the long OTM position (especially when its after an earnings date) to protect against a catastrophic move. Any comments? Thanks.

Fantastic info. Thanks Chris. So you don't separate the costs out so you can automatically tabulate them? How are you calculating the totals then - are you doing it manually each time? I think my mistakes are that I tried to break atomic piece of data up, so I have around 15 columns just for these trades. Thanks!

Based on what you said I'm thinking when one of the short strikes get touched I'll buy a directional long I am kidding of course, but it would be another interesting thing to test.

so you'd close the put at the same time? thanks!

Chris, Thanks for all of your posts. You thinking about rolling that 41 call up a .5 now as its getting close so early in the week?

Chris, Thanks. This is kind of off topic, but my trade journal is becoming so big that I'm not consistently filling it out. I've actually resorted to just writing on paper. When I say big it means I have alot of columns in my spreadsheet now. For example on these trades, what columns/fields are you collecting data on? Thanks!

SO, Hello again. In the past many of used optionslam.com to get a report of upcoming earnings dates with volume and volatility to get able to get an idea of good earnings straddle/strangle/RIC candidates. It looks like optionslam has gotten rid of the free report and you must now subscribe. Is there another site anyone recommends or just spend the $8 a month at optionslam? Thanks!

Has anyone held ICs during the 2000 or 2008 market disasters and can comment on them? I assumed they were bad periods for ICs, but now I wonder with the large dips, ICs done during that period may have had larger credits and/or distances between the wings and thus maybe they actually did better. Thanks!

Scott, Check out Kim's stock repair strategy referenced here. I am considering doing this myself. http://steadyoptions.com/forum/topic/422-csco-my-idea/page__hl__+stock%20+repair%20+strategy#entry14391

I have no idea why MSFT stock price got crushed today.

I mis-typed and miscalculated the %. The XOM 85 C / 95 P Jan '13 Guts Strangle was up net commissions close to $30 yesterday. Depending on your broker, for holding for around 5 business days you could have close it at around ~2.0% gain. ( .3/11.6 less commissions). SNDK had been up too. That is all I monitored. Backtesting is of limited effectiveness because it all EOD data on TOS.

Thanks Chris. I like Kim's idea of a double calendar on this. Just in eyeballing the data it looks like there maybe be value in closing the long strangle when it is directional and ~0.5% profitable in the first week. In fact I am considering just purchasing .80 delta long strangles on a Thurs and setting a limit to close the spread as soon as .4% profit is reached which in what I have seen in most of these trades, is usually within 2-3 business days. That being said I am wondering if the much cheaper .20 delta strangle would have a higher % profitability (but the trading transaction costs would be higher)

Chris, With a .99 delta that non-directional long will lose on almost a dollar for dollar basis if the stock moves against, however the directional long will only gain on the .60 or whatever delta it has. Thus I think you end up with a sizable loss in the long strangle you are holding. That long strangle was supposed to be the protection against the short strangle losses or large moves, so what I am saying is you'll lose twice. You'll lose on the short strangle and the long strangle. Thanks!

I was hunting around trying to see if Jeff Augen was still publishing any articles anywhere. I found from Augen's linked in account and from google searches that Augen appeared to have an affiliation with this site Traders Edge Network: http://www.tradersedgenetwork.com/ This is run by a "Preston James" fellow. In google searching a bit I wasn't clear if Preston James is a known scam artist? He may not be but there are forums that reference him. Of course the Internet has posting on everyone, so I am not saying those forums are true. Anyway, I bring most of this up because from this traders edge I then found this association with this "stockwhizkid.com" To me this seems very shady looking. Advertising doing GOOG short butterflies during an earnings period sounds like the IV collapse we always preach here. Even the example is taken AFTER GOOG's January 2012 earnings were announced. http://www.stockwizkid.com/thank-you/ The young man who is the "stock whiz kid", Karson Keith's site now seems like it is called "Karson Keith with Jeff Augen indicators" http://stockwizkid.kajabi.com/user_sessions/new Does anyone know if this site is legit? It just seems shady and the reason I ask is mostly because I seeking some up to date articles from Jeff Augen.

Its not just the theta on the longs. Again the longs are now directional therefore if there is a reversal you'll lose on the longs and the current call you are still short will become a loss.