Updates on April trades - SPY Double Diagonal
Written on April 11, 2008 by OptionsRopeaDope
This trade has been good to me - It is currently up 15% in the past 3 weeks, and is super safe. I do have a decision to make though… here is the risk graph, with lines showing P/L for next Monday, and next Wednesday:
Notice how on Monday, I stand to make additional gains from theta no matter what happens (the green line). After Monday, if the SPY drops I can increase my yield substantially (up to 30-40% if a 5% drop) because of the huge theta drop of my APR put. But If it doesn’t move, or starts to rise, the “sag” between my shorts will start to take over my profits… and I won’t let that happen.
I’ll do another few Double Diags for May, and will open them after APR expiration.
The greeks for this trade -
SPY Double Diag - 126 May/129 Apr Puts, 141 Apr/144 May Calls
| RRDelta | 6% (16) |
| RRGamma | 6%(-14) |
| Theta | 25 |
| RRVega | 30%(80) |
Delta/Theta = .2
For any one other than the 3 readers that saw my blog post about how I’m trying to capture the “true exposure” of my position, RRDelta, RRGamma, and RRVega are “Risk Adjusted.” Follow the last link for details. It is my attempt to get a read of my exposure that takes into acount my max loss for the trade. The higher the numbers get, exceeding 100 even, the closer I am to being in serious danger. These very low numbers mean I’m in a good, good place and can expect a profit with a high probability. Also tells me that a 3 point decrease in volatility could bring me all the way to my max loss.
Looking at Theta doesn’t help much, as it only goes one way (down) and since I’m milking it, it isn’t a threat. What I do care about though is how will a move affect my P/L on the trade? Delta/Theta ratio tells me how much a 1 point move will cut into my theta. If it is low, it’s happy time. If it’s high (say, over 1) then it tells me I might want to neutralize the deltas. It won’t be perfect ( I know there are many times that ration woulf be 5 or even 10) but its a start. And since it is a ratio, I can use it know matter what my position size is. Over time I’ll be able to know what my “danger zone” is for that ratio.
If you don’t care about any of this, I included the raw numbers for each greek in parenthesis.
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Posted in Real Trades, Double Diagonals, SPY
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