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On January 27, one of our long term members posted the following post: We booked nice gains ranging from 18% to 37% on CF pre-earnings calendars in the previous cycles, but this one was different. We usually don't bet on the earnings date (we did it once and got burned). But the risk/reward of the trade looked very favorable: if the earnings date will be on the second week of February, the spread should keep its value and probably produce 15-20% gain. But based on previous cycles, it was very likely that the earnings will be on the third week of February. Based on this information, some members started building positions around 0.75-0.85: I started scaling into the spreads last Thursday around $1.00-1.05 and officially, we had a full position by Friday close at cost base of 1.025 per spread. Sure enough, after the Friday close CF announced that they will be reporting earnings on February 18, the third week of February. On Monday, the week2 options IV decreased as expected since those options now expire before earnings, and the monthly options IV increased. We sold the spreads between $1.55-1.75, booking 62% gain in two days of holding, without taking any directional risk. Some members did even better: Again, what is especially remarkable about this trade idea is the fact that it came from one of our members, who took the time and the effort to follow and learn our strategies. In SO community, the learning never stops. I am extremely proud of our community that allows us to share ideas and find new opportunities every day.
Dave W posted a topic in General Board@Yowster or others, I'm hoping to get some advice. I occasionally trade unofficial hold through earnings (HTE) calendars and have run into a recurring issue. After earnings, sometimes the price jump in the stock results in my calendar becoming deep in the money. When I try to close out the deep ITM calendar, the market makes it very difficult or impossible for me to close out at a reasonable price. For example, this recently happened to me on RHT. I had an 82C calendar spread March 31 short / April 7 long and at the close before earnings on March 27 the stock price was $82.32. About an hour after the open on March 28, RHT stock was at $86.93. So my 82C were $4.93 ITM. But the mid-price to close out the spread was in a kind-of 'backwardation' (yes, I know that isn't the exact right term, but the situation seems similar). The mid for the short leg was $5.00 and the mid for the long leg was $4.90, so a debit of $0.10 to close the spread. Paying a $0.10 debit to close the spread (or even closing at $0.00) seemed unreasonable given that if I held the short leg through expiration, any premium to close the short options would be gone and hopefully the long option would recover some premium ($0.10 to $0.15 based on my review of other RHT options in different time periods). So I held the spread through expiration and got assigned. I closed out the position the following day using a combo stock / option order on TOS. I'd like someone who has done a number of these HTE trades to help me understand: 1. Has this ever happened to you? How would you recommend closing the trade when the price to close out the calendar spread is "way off" from what seems reasonable (e.g., having to pay a debit to close)? 2. If I do hold through expiration and get assigned, am I still 100% covered by the long option? In other words, will the changes in the long option prices offset changes in the short stock position exactly? I'm guessing the answer is no, but I haven't really looked at this yet and am not sure the best way to model it. I appreciate the advice. Thank you!
Kim and SO Friends, I posted this under the RUT calendar post as well, but I know not everyone will see it there. I am interested in a general practice for managing a triple calendar however I am providing my specific example below. Thanks! I am currently in a RUT triple calendar 820 Put, 840 Call, and 860 Call: long Jan 03 '13 short Dec 27 '12 I have a very small position. I entered the trade last Thurs with RUT at 828. Current the trade is slightly profitable with the 820 put down 22% though. However I have no idea how to close this. Should I close the whole trade or leg out and if so which should I leg out of first? I am thinking of closing the 840 which is up over 30% and than closing at the next available move towards 820 or 860. Thank you!