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Longcalldiagonal

OPENING: FORD DECEMBER/AUGUST 4/7 LONG CALL DIAGONAL... for a 2.55/contract debit. Metrics: Max Loss on Fill: $255 Max Profit on Fill/ROC% at Max: $45 (17.6% at Max) Break Even: 6.55 Debit Paid to Spread Width Ratio: 85% Delta/Theta: 47.07/.53 Notes: A small, bullish assumption trade in Ford in one of my favorite synthetic covered call setups. The debit paid to spread width ratio isn't what I generally like to see out of these, with 75% or less being ideal, but part of that has to do with the shorter duration of the front month (31 days 'til expiry) than I would ordinarily go, so I'm fine with that. As with a covered call, look to roll out the call side on approaching worthless with max being realized on a finish above your short call strike. The take profit is subjective, but I usually like to start out with a take profit at max (here, 3.00 -- the width of the diagonal) and then reduce that target with credits received on roll of the short call (e.g., if you receive a .25 credit on roll, reduce your take profit to 2.75).
NYSE:FLong
by NaughtyPines
OPENED: PBR OCTOBER/AUGUST 6/9 LONG CALL VERTICALBack into PBR again after taking off my previous long call diagonal at near max yesterday. Metrics: Max Loss on Setup: $217/contract Max Profit on Setup: $83/contract Break Even: 8.17 versus 8.72 spot Debit Paid to Spread Width Ratio: 72.3% Notes: Still think this has some room to run here. Went out a little farther in time with the front month to bring in more credit. Implied still decent here at 65.6% 30-day; 62.0% in the August expiry. Initial take profit will be at or near max (i.e., 2.95 -- .05 short of 3.00 max). Will reduce cost basis further via roll of the short call if it doesn't hit by August expiry.
NYSE:PBRLong
by NaughtyPines
EDUCATION: BACK MONTH DURATION SELECTION FOR SYNTHETICSI have on occasion highlighted the benefits of using various options strategies instead of getting into stock, not the least amongst them being buying power effect. Pictured here is a 98.35 delta long call in SPY in the December 16th '22 (896 Days Until Expiration) cycle costing 183.35 ($18,335) to put on versus 312.23 spot (i.e., it would cost $31,233 to get into a full, uncovered one lot of SPY here). Although even this highly delta'd long call is "dynamic" (i.e., its delta will change in response to movement in the underlying, decreasing as price moves into the strike and increasing as it moves away), it is -- at least at the outset -- near being equivalent to being in long SPY stock at the strike price (130) plus its value (183.35) or 313.35.* Such deeply monied longs generally stand in for stock, which are then covered with a short call to emulate a covered call without paying covered call prices. This is particularly important in a cash secured setting where buying power is limited or in small accounts where getting into a full one lot of certain underlyings is prohibitive. Naturally, even getting into this particular long call will be beyond the reach of some smaller accounts, but I'm using SPY here as an exemplar; the same delta and duration considerations apply with any underlying. Generally speaking, my rule as to duration with the back month long has been to "go as long-dated as you can afford to go," since having a longer back month duration allows for a maximal number of opportunities to reduce cost basis via short call. However, if your go-to strike to buy as your stock substitute is, for example, something around the 100 delta strike,** then going longer-dated usually means that you'll have to go deeper and deeper in the money to buy that strike, and that usually gets more and more expensive as you go out in time. But does it? Here's a look at SPY long calls around the 100 delta and their cost over time: October 16th 155 (105 days) 158.15 January 15th 130 (196 days) 183.20 March 19th 130 (258 days) 183.50 June 18th 130 (350 days) 183.35 September 17th 130 (441 days) 183.35 December 17th 130 (532 days) 183.30 March 18th '22 130 (623 days) 183.30 June 17th '22 130 (714 days) 183.30 December 16th '22 130 (896 days) 183.35 Interesting, huh? You basically don't pay more by going longer-dated between January of '21 and December of '22. Naturally, this might not always be the case; currently, expiry implied volatility slopes away somewhat from shorter duration implied in SPY, with all of '22 being between 22.6 and 22.9%, and we've had substantial periods of time where it is the exact opposite: implied slopes upward from short to longer duration. Put another way, you'll probably have to look at whether going longer duration makes sense each time you get ready to set one of these up. Just for kicks, I also looked at QQQ: October 16th 130: 122.95 January 15th 112: 141.00 March 19th 105: 148.05 June 18th 92 (lowest strike available): 160.05 September 17th 92 (lowest strike available): 161.00 June 17th '22 92 (lowest strike available): 161.00 December 16th '22 92 (lowest strike available): 161.50 Not much difference between going June of '21 versus December of '22. And EFA (albeit with fewer available expiries to look at): December 18th 25 (lowest strike): 37.02 March 19th 25 (lowest strike): 37.02 June 18th 25 (lowest strike): 37.00 January '22 25 (lowest strike): 36.88 No significant difference between December of '21 and January of '22. And TLT: October 16th 95: 68.55 December 18th 95: 68.55 January 15th 95: 68.55 January 21st '22 95: 68.55 December 16th '22 95: 68.60 No significant difference between October of this year and December of '22. In a nutshell: where there isn't a significant difference in price between shorter and longer duration of the same delta, go with the longer duration. It'll afford you with more time to reduce cost basis and/or generate cash flow via short call premium. * -- That particular strike is bid 181.90/mid 188.35/ask 184.75, but would to get filled somewhere closer to spot (312.33) minus the strike price (130) or 182.33. In all likelihood, you're going to pay some small amount of extrinsic, but would start price discovery there, since a strike near the 100 delta should be almost all intrinsic value. ** -- My general go-to in the past has been to buy the back month 90, sell the front month 30 to obtain a net delta metric of +60. Buying a slightly lower delta'd long will obviously cost less (e.g., the 90-delta December 16th '22 is at the 205 strike and would cost 114.25 to put on versus the near 100 delta 130's cost of 183.35), but will also have more extrinsic in it.
AMEX:SPYEducation
by NaughtyPines
OPENING: TLRY SEPTEMBER/JULY 6/10 LONG CALL DIAGONALBack to the "Weed Well" immediately post earnings with 30-day still ginormous at 198% while I wait for June opex ... . Metrics: Max Loss: 2.89/contract Max Profit: 1.11/contract Debit Paid to Spread With Ratio: 72.2% Break Even: 8.89 versus 10.01 spot Notes: Extrinsic collected with the short call far exceeds that in the long, so I make money if it just sits here or does anything but drop below the break even at 8.89. If it doesn't approach near max at July expiry, I'll look to roll out the short call for additional cost basis reduction.
NASDAQ:TLRYLong
by NaughtyPines
3
TRADE IDEA: WFC OCTOBER/JULY 22.5/35 LONG CALL DIAGONALAnother financial that has recovered some, but probably has some room to run back to pre-COVID-19 levels .... . Metrics: Max Loss on Setup: $918 Max Profit on Setup: $332 Break Even: 31.68 versus 32.63 spot Debit Paid to Spread Width Ratio: 73.44% Notes: I like to do these split month, but there's no September available, so had to go out to October to buy the 90. Manage like a covered call, rolling the short call out on extrinsic approaching worthless and, if necessary, down (but not past) your break even.
NYSE:WFCLong
by NaughtyPines
OPENING: FORD SEPTEMBER/JUNE 3/5.5 LONG CALL DIAGONAL... for a 2.27/contract credit. Metrics: Max Profit on Setup: .23 ($23)/contract Max Loss on Setup: 2.27 ($227)/contract Break Even on Setup: 5.27 versus 5.41 spot Debit Paid to Spread Width Ratio: 90.8% Notes: Re-upping with a small engagement trade in Ford while I wait on June mopex trades. Here, the debit paid to spread width ratio kind of stinks, so my intent is to roll the short call out on extrinsic approaching worthless to reduce cost basis in the diagonal and increase max profit potential further.
NYSE:FLong
by NaughtyPines
OPENING: XOP NOV 15TH 16/SEPT 20TH 22 LONG CALL DIAGONAL... for a 4.89 debit. Metrics: Max Profit: $111/contract Max Loss: $489/contract Break Even: 20.89 Delta/Theta: 38.75/.98 Debit Paid to Spread With Ratio: 81.5% Notes: Going long XOP at long-term lows with a 90/50 long call diagonal (i.e., 90 delta for the long call/50 for the short). Going a little more aggressive with the short call than I usually would to get a little more room to the downside. Shooting for 50% max.
AMEX:XOPLong
by NaughtyPines