Adjust - EEM 150/160 Double Calendar
Written on June 5, 2008 by OptionsRopeaDope
Lesson learned on this one - I waited too late to adjust, as EEM gapped down yesterday. EEM was on the edge of my adjustment point on and off for a couple of weeks (my adjustment point should have been about 148). It had dropped to about 146 by the time I pulled the trigger. Big faux pas. I’m going to put this in the “never make that mistake again” file. Adjustments are not to protect profit, but to prevent loss, and I lost sight of that, as I didn’t want to see my profit potential drop significantly.
My original position was -
EEM 150 Jun/Sep Calls
On 5/19, I closed half the position and added a 160 calendar. Iteration 2:
EEM 150 Jun/Sep Calls, EEM 160 Jun/Sep Calls
Yesterday I had a number of choices to make… First, EEM was already near 145 and had a couple of big down days. In addition, I’m not technician, but I could have sworn I saw the famous “head and shoulders” on the price graph, built over the last coupld of months. Looked to me like a strong down trend. So, I took all of the 160 calendar off, and moved it down to 140.
Next, desiring to reduce the capital in the trade, instead of opening a Jun/Sep time spread on 140, I chose the Jun/July. Reduced my cost quite a bit. The trade is below.
EEM 150 Jun/Sep Calls, EEM 140 Jun/July Calls
As luck would have it, today EEM rocketed up a smooth 2.5 standard deviations (that’s supposed to only happen once a year or so!) closing at 149.90. Nice! Or not. (Despite that, IV actually dropped today) Luckily, as can be seen in the pic, the Jun/Seps at 150 are actually helping me right now, giving an extra wide break even. It also got me very near to delta neutral, which I appreciate.
In an analysis of this trade, I’m currently down 14% on my initial capital outlay. I no longer have a chance of hitting 20% profit on the trade, but I have a very high chance of breaking even. The Jun-July skew is even greater now (over 4%) so the June options should have alot of decay in their short life. The greeks:
EEM Calendar - 150 Jun/Sep / 140 Jun/Jul
| RRDelta | -9% |
| RRGamma | -7% |
| RRVega | 31% |
Delta/Theta = -1.02
1 Day 1 Std Dev Move (2.04 points)
Popularity: 12% [?]
If you enjoyed this post, make sure you subscribe to my RSS feed!
Other posts like this one:
Posted in Real Trades, Mistakes, Calendars, EEM
No comments yet.