Opening (Small Account): EWZ June/Nov 25/32 Long Call Diagonal
Updated
.. for a 6.26 debit.
Comments: Here, doing a similar trade to the one I did in my IRA (but with far fewer contracts) (See Post Below), buying the long-dated 88 delta call in the June expiry and selling the at-the-money call in November to create what amounts to a synthetic covered call. I paid 6.26 for a 7-wide, so my max profit potential is the width of the diagonal (7.00) minus what I paid (6.26) or .74 ($74), which would be a return on capital of 11.8% assuming the setup converges on max (7.00).
Immediately after fill, I entered an order to take the whole shebang off for 6.95 if that happens, which is a nickel short of max. Naturally, if that doesn't happen as we approach expiry of the front month, I'll roll the short call out for a credit, reducing my cost basis further, as well as improving my break even (which is currently the long strike (25) + 6.26 = 31.26).
Comments: Here, doing a similar trade to the one I did in my IRA (but with far fewer contracts) (See Post Below), buying the long-dated 88 delta call in the June expiry and selling the at-the-money call in November to create what amounts to a synthetic covered call. I paid 6.26 for a 7-wide, so my max profit potential is the width of the diagonal (7.00) minus what I paid (6.26) or .74 ($74), which would be a return on capital of 11.8% assuming the setup converges on max (7.00).
Immediately after fill, I entered an order to take the whole shebang off for 6.95 if that happens, which is a nickel short of max. Naturally, if that doesn't happen as we approach expiry of the front month, I'll roll the short call out for a credit, reducing my cost basis further, as well as improving my break even (which is currently the long strike (25) + 6.26 = 31.26).
Note
I would note that price of this setup could, indeed converge on something greater than the width of the diagonal. Currently, the June long is worth 7.37, so it's conceivable that you could get more than 7.00 max out of the trade (e.g., 32 short call converges on worthless, but long maintains a value >7.00 due to remaining extrinsic).
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