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Longputdiagonal

Opening (IRA): QQQ March 24th 280/May 19th 323 LPD*... for a 31.72 debit. Comments: Short delta hedge against a long delta portfolio. Buying the back -90 delta put and selling the front +30 to give me -60 delta/contract worth of hedge. This isn't a commentary or forecast of where the market goes from here, but rather in the nature of buying protection to keep my wife from yelling at me because her portfolio is down too much. 31.72 cost basis with a 291.28 break even on a 43 wide. * -- Long put diagonal.
NASDAQ:QQQShort
by NaughtyPines
2
Trade Idea: Defined Risk Options Setups to Short the DIAmondsWith the DIA at fairly long-term overhead resistance, I thought I'd set out how I'd potentially take a bearish assumption directional shot using a defined risk options setup where the max loss is known from the outset. There are several ways to go about this: 1. Short Call Vertical Buy the September 15th 351 call and sell the September 15th 346 call, resulting in a five wide spread for a 2.70 ($270) credit. Max profit is realized on a finish below the short call strike at 346; max loss, on a finish above 351. Metrics: Max Loss: 2.30 ($230) Max Profit: The width of the spread (5.00) minus the credit received (2.30) or 2.70 ($270). Break Even: 348.70 Probability of Profit: 55% ROC %: 117% at max; 58.7% at 50% max. Delta/Theta: -12.03 delta, .79 theta Variations: 1) Go farther out-of-the-money with your spread, giving yourself more room to be wrong, with the trade-off being a smaller credit received and a lower ROC %-age. Example: September 15th 356/361 short call vertical, 1.09 ($109) credit on buying power effect of 3.91 ($391) (which is also your max loss). 27.9% at 50% max; 13.9% at 50% max; -10.02 delta, 1.14 theta. Max loss is realized on a finish below the short option leg of the setup (i.e., 356). 2) Widen the at-the-money spread, but to not more than a risk one/make one setup. Example: September 15th 346/354 Short Call Vertical, 3.95 credit on buying power effect of 4.05 ($405) (which is your max loss). 97.5% ROC at max; 48.8% at 50% max. -19.54 delta, 1.42 theta. Here, you're risking 4.05 to make 3.95, which is about as close to a risk one/make one setup as you can get. If you look at the delta metrics of each as an indicator of how bearish your assumption is, the out-of-the-money spread has the lowest of the bearish assumptions at -10.02 delta; the risk/one make one 8-wide 346/354, the greatest at -19.54. Generally speaking, the setup should match your assumption somewhat, so if you're presumably less confident of a retreat from this level, then you should probably go with the out-of-the money spread; more confident, with the wider, at-the-money spread. 2. Long Put Vertical Buy the September 15th 349 put and sell the September 15th 343 put, resulting in a 6-wide spread for which you pay a 2.50 debit (which is your max loss). Max profit is realized on a finish below 343; max loss on a finish above 349. Metrics: Max Loss: 2.50 ($250) Max Profit: 3.50 ($350) Break Even: 346.50 Probability of Profit: 50% ROC %-age: 140% at max; 70% at 50% max Delta/Theta: -17.95/.72 Variations: As with the short call vertical, you can naturally widen the spread, with my preference being to keep the ROC %-age metrics around a risk one to make one. 3. Long Put Diagonal Buy the September 15th -90 delta 369 put and sell the +30 delta August 18th 339 for a 21.75 ($2175) debit, resulting in a 30-wide calendarized* spread. Max Loss: 21.75 ($2175) Max Profit: 8.25 ($825) Break Even: 347.25 Probability of Profit: 54% ROC %-age: 37.9% at max; 19.0% at 50% max. Delta/Theta: -60.65/2.99 A couple of things stand out about this setup. First, look at the short delta; it's bigly at -60+. Second, look at the price tag; it's also bigly relative to the other setups. That being said, the max profit potential is also greater than the other setups, but would require a finish below the short leg at 369. It does, however, have one additional advantageous element, and that is its calendarization which allows you to roll out the short option leg for additional credit should the setup not work out immediately. This results in a reduction in cost basis for the setup, improves your break even and therefore your profit potential. On a more practical level, I personally don't look to get max profit out of this type of setup. I look to take profit at 10% of what I put it on for and then move on. Here, that would be around $220 or so; given the setup's delta, that would require a move of around 4 handles or so to the downside, which wouldn't be much to ask given price action in the underlying. 4. Zebra**/Put Ratio Spread Buy 2 x the September 15th -75 delta 375 puts (for a total of -150 delta) and sell 1 x the +50 delta put at the 345 for a 13.65 ($1365) debit. Max loss is realized on a finish above 375; max profit isn't defined. Metrics: Max Loss: 13.65 ($1365) Max Profit: Undefined*** Break Even: 347.35 Probability of Profit: 53% Delta/Theta: -101.19/-1.23 As with the long put diagonal, the short delta is bigly -- the biggest of all the setups at -100, so if the underlying moves down one handle, the setup will be in profit by 1.00 ($100). Conversely, if it moves 1.00 to the upside, it will be in the red by 1.00, at least at the outset, when its dynamic delta remains at -100. Since this setup does not reach a "max," taking profit is somewhat subjective. As with the long put diagonal, I generally take profit at 10% of what I put it on for and move on. $136 in profit isn't particularly compelling here, so I could see looking to take profit on movement toward the most recent swing low at 337, which would result in 8 handles or so of -100 delta profit ($800). An added disadvantage to hanging out in this setup for too long for "moar" is that there is some degree of assignment risk if the short put goes deep in-the-money, particularly if it does that toward expiry. 5. High Probability of Touch Long Put Buy the September 15th 342 Long Put for a 4.55 ($455) debit Metrics: Max Loss: 4.55 ($455) Max Profit: Undefined Probability of Profit: 32% Break Even: 337.45 Delta/Theta: -40.72/-4.52 I generally don't do standalone longs for a number of reasons I won't get into here, but thought I'd set out some kind of common sense approach that utilizes one of the metrics most traders that seem inclined to use this approach don't discuss (or aren't aware of) and its "Probability of Touch" -- the likelihood that price will "touch" the strike at some point during the life of the contract. The general rule of thumb is that POT is about 2 times the delta of the strike. Given the fact that this is a -40 delta strike, the POT is around 80%, implying that the options market is pricing in about an 80% probability that price will touch the 342 strike at some point during the life of the contract. * -- It's "calendarized" because one leg is in a different expiry than the other, as compared to the short call and long put verticals, above, where both legs are in the same expiry. ** -- A "Zebra" is a "zero extrinsic back ratio" spread with the short option legs paying for all of the extrinsic in the longs, resulting in an at-the-money break even. *** -- It's technically 347.35 ($34,735), but that assumes DIA goes to zero, which (just taking a stab here) probably isn't going to happen.
AMEX:DIAShort
by NaughtyPines
2
Trade Idea: GLD August 18th 210/June 9th 185 Long Put DiagonalWith GLD at or near all time highs, looking to buy the back month -90 delta put and sell the front expiry +30 delta to synthetically emulate a covered put with -60 delta or so. Will look to take profit at 110% of my cost basis (i.e., a 21.57 credit, resulting in a 1.96/$196 profit). Metrics: Max Loss: 19.61 debit Break Even: 190.39 relative to 189.64 spot (pre-market) Max Profit: The width of the spread (25.00) minus the debit paid (19.61) or 5.39 ($539) Will adjust price at open if necessary to get a fill.
AMEX:GLDShort
by NaughtyPines
Opened (Margin): GLD May 19th 185/Sept 15th 210 LPD*... for a 19.98 debit. Comments: Taking a bearish assumption directional shot in GLD here on strength. Buying the back month -90 delta put and selling the front month +30 to emulate the delta metrics of a covered put (i.e., short a one lot of stock + short a put). Cost basis of 19.98 with a 190.02 break even on a 25 wide. 5.02 ( SGX:502 ) max profit, assuming a finish sub-185, 25.1% ROC at max; 12.6% at 50% max. Will generally look to roll out the short put at 50% max to the shortest duration 30 delta strike that is at or below my break even. With the back month out in September, I have quite a few opportunities to reduce cost basis if the setup doesn't work out immediately. * -- Long Put Diagonal.
AMEX:GLDShort
by NaughtyPines
Opening (IRA): QQQ March 17th 288/May 19th 327 LPD*... for a 29.86 debit. Comments: Re-establishing my short delta hedge against a long delta portfolio, buying the back month -90 delta and selling the front +30 to give me -60 delta of hedge per contract. This is not a comment on where the market goes from here, but rather protection to keep me from filling my diaper in the event the market sells off (although you can certainly use this setup to take a directional shot, too). Cost basis of 29.86 with a 297.14 break even on a 39 wide. * -- Long Put Diagonal
NASDAQ:QQQShort
by NaughtyPines
Opening (IRA): SPY March 24th 390/May 19th 434 LPD*... for a 31.62 debit. Comments: Re-establshing my short delta hedge in SPY against a long delta portfolio. Buying the back month -90 delta put and selling the front month +30 to give me around -60 delta of pro per contract. As with my other short delta hedges in IWM and QQQ, will look to roll out the short option leg to keep my portfolio "net delta happy" as well as to maintain a break even at or around where the underlying is currently trading. 31.62 cost basis with a 402.38 break even on a 44 wide.
AMEX:SPYShort
by NaughtyPines
Opening (IRA): SPY October 28th 358/January 20th 420 LPD*... for a 49.44 debit. Comments: Re-erecting my SPY short delta hedge here against my long delta portfolio, buying the back month 90 delta in the January monthly (98 days), and selling the front expiry 30 (14 days). 49.44 cost basis with a 370.56 break even on a 62 wide. 12.56 ($1256) max profit; 6.28 ($628) 50% max. Will look to roll out the short put aspect to reduce cost basis in the setup over time. * -- Long Put Diagonal.
AMEX:SPYShort
by NaughtyPines
2
Opening (IRA): QQQ Nov 18th 251/Jan 20th 300 Long Put Diagonal... for a 38.21 per contract debit. Comments: After taking profit on my previous long put diagonal in the Q's (See Post Below), re-erecting it immediately here, since I still need QQQ short delta. Selling the front expiry 30 delta and buying the back month 90 to delta hedge against a long delta portfolio. Going a little larger contract wise due to having some QQQ short puts that are basically right at the money ... . 38.21 cost basis on a 49 wide with a 261.79 break even with a take profit that is 50% of max (49.00 - 38.21)/2 + 38.21 = 43.60.
NASDAQ:QQQShort
by NaughtyPines
1
Opening (IRA): SPY October 14th 352/December 16th 409 LPD*... for a 43.10 debit. Comments: Short delta hedge against a long delta portfolio; buying the back expiry 90 delta, and selling the front expiry 30. 43.10 cost basis on a 57 wide with a 365.90 break even, a 13.90 ($1390) max, and a 6.95 50% max. Will look to take profit at 50% max, which would be for a 50.05 credit and/or roll out the short put to reduce cost basis if the setup doesn't hit take profit by the time the short put runs out of road. * -- Long put diagonal.
AMEX:SPYShort
by NaughtyPines
4