Open - CAT Calendar

Written on May 22, 2008 by OptionsRopeaDope

I opened this last week - after some reflection on the Insane Money forums, and noting it had all the right looks - lowest point for IV in a year, fluid options, appearance of price stability, I took the plunge, and opened the trade for a 1.16 debit. It was immediately profitable, but has dropped a good deal since, and is almost ready for an adjustment. Here is the current graph, and my current numbers -

 catcal.jpg

CAT Calendar - 85 Jun/July  

RRDelta 32%
RRGamma -9%
RRVega 19%

Delta/Theta = 11.06

1 Day 1 Std Dev Move (1.06 points)

Delta is getting close to my discomfort zone (33%, not to mention the horrible delta/theta ratio), but I’ll kick in an adjustment before it gets to that point. RRDelata of 32% means a one std dev move downward will get me 1/3 of the way to my max loss… This position is currently down 8% or so with CAT at 82.22, but even if it stays where it is, my max profit would be 20%. Given that I have an adjustment plan to correct Deltas for more downward movement, and my vega is very comfortable, I would consider this position healthy, with an overall high chance for profit.

In hindsight, Mojo of Insane Money decided to do a paper trade on this with a double - He is probably quite profitable right now but my philosophy of starting with single calendars where possible will remain.

If you don’t know what is up with these numbers, read this about how I look at greeks.

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