I always have mixed feelings about long weekends on the market.
On the one hand I enjoy the fact that as an options trader time is working in my favour and my positions in many cases benefit from no movement in underlying stock. That's because the theoretical value of stocks diminish every day.
On the other hand I love trading options and am always eager to get my hands dirty.
For those, who are new to my daily market comments, I place and document one trade a day with the objective of helping everyone learn how to trade options.
What's my trade for today?
#UAL (#UnitedAirlines) earnings with a double calendar spread, which means I sold the $48 put and the $55 call expiring in January and bought the same expiring in March. As options expiring further away in time are always more expensive then options expiring sooner, these sorts of trades are debit trades so we do not get credit for it. However, the idea is that the options that we sold lose their value much sooner than the options we purchased so after earnings hopefully I will be able to close this trade for a profit.
How do we take advantage of calendar spreads?
If we take a look at the option chain below we can see that the volatility (indicated as IVx) in Jan is 86.5% while in March it's 45.8%. So the extrinsic value component of the premium in Jan is proportionally much higher because of the earnings. Normally immediately after earnings the volatility drops and the January options have a lot more to 'lose' proportionally.
Trade Type: Double Calendar
Strike: $48p / 55c
Expiry: 20 Jan
IV Rank: 11.8
Cap Req: $332
Annualised Prof at Expiration: ?
IMPORTANT: Studying previous trades provide the opportunity to everyone to learn a great deal so I encourage you to click on the links below and digest the info.
Watch more detail here:
Let me know what you think.
This is a catch up post:
On 10/Feb this position expired worthless so I managed to realise a 50% annualised profit.
Sold my long put position and sold Feb $53 call.
In other words, I replaced my calendar spread with a strangle hoping to get a scratch out of this deal.
Current position: Short Feb $48p/$53c.
Total credit: $0.26.
Rolled my short position one week out to 10/02/2023 for $0.19 credit.
Total credit: -$1.39.
Rolled my short position one week out to 03/02/2023 for $0.30 credit.
Total credit: -$1.58
This trade didn't work out as intended but instead of closing it with a $0.15 loss I am keeping my dreams alive by closing my call positions and rolling my short put to next week. These moves gave me $1.44 back.
Current position: short Jan 27 $48 put; long March $48 put.
Total credit: $-1.88
How much is your max lose on this trade?