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Putdiagonal

TRADE IDEA: IYR APRIL/JUNE 81/92 PUT DIAGONALAlthough this trade isn't quite ripe for me yet (I'm waiting for all time highs (circled), I thought I'd stick it out there in order to price the setup out, at least preliminarily. Naturally, the strike prices and/or expiries will have to be adjusted should a short opportunity come to pass ... . As with my TLT calendar (See Post Below), this trade operates on the assumption that the underlying will get dinged somewhat in a tightening rate environment (although it seems to bounce back every time), with the next hike being talked about in June. Metrics: Max Loss On Setup/Buying Power Effect: $797/contract Max Profit On Setup: $303/contract ($151 at 50% max; 18.9% Return on Capital). Break Even: 84.03 versus 84.04 spot Debit Paid to Spread Width Ratio: 72.5% Delta: -45.98 Theta: .45
AMEX:IYRShort
by NaughtyPines
TRADE IDEA: UNG JAN/APRIL 23/32 PUT DIAGONALMetrics: Max Profit on Setup: 3.00 Max Loss/Buying Power Effect on Setup: 6.00 Break Even: 26 versus 26.06 spot Debit Paid to Spread Width Ratio: 67% Delta: -48.42 (bearish assumption) Theta: .28 Notes: In an ideal world, there would be a December expiry currently available for the front month leg (there will be one after October drops off) and a price in the 28 area to put this on, but I wanted to get a preliminary idea of whether it would pay and what the metrics were, with the focus being on the debit paid/spread width ratio (<75% is bueno). I'll look at pulling the trigger on this if price gets back to 28, adjusting the strikes if necessary to accommodate ... .
AMEX:UNGShort
by NaughtyPines
7
TRADE IDEA: XOP NOV 16TH 41 SHORT/MARCH '19 50 LONG PUT DIAGONALMetrics: Max Loss/Buying Power Effect on Setup: $636/contract Max Profit on Setup: $264/contract (41.54% ROI at max; 20.75% at 50% max) Break Even: 43.64 versus 43.58 spot Debit Paid/Spread Width Ratio: 70.7% Theta: .84 Delta: -54.75 Notes: I'm not going to put this setup on quite yet, as I would prefer that the price of the underlying be "at the top of the box" (~44.50), but always like to price potential setups out ahead of time and then tweak them a little bit as price of the underlying may dictate. I generally start out looking at these directional setups with the front month short option at the 30 delta and then adjust the back month long so that the break even is as close to the spot price as possible. Additionally, I like to pay less than 75% of the spread width, so that 70.7% debit paid/spread width ratio is a decent metric. You can naturally go shorter in time with the back month (which will result in a cheaper setup), but I like to give myself plenty of time to reduce cost basis in the setup over time with rolls in the event I don't get the movement I need to exit the trade fairly quickly. As far as trade management is concerned, look to take profit at 50% max, Roll the short put out on significant loss of value (usually 50%), and then recalculate your scratch/take profit targets ... .
AMEX:XOPShort
by NaughtyPines
1
OPENING: GDX MARCH/SEPT 18/20 UPWARD PUT DIAGONAL... for a .04/contract credit. Max Profit on Setup: $4/contract Max Loss on Setup: $196/contract (width of the spread minus credit received) Break Even on Setup: 19.96 Delta: 27.37 Theta: .43 Notes: Taking a small bullish shot on gold weakness here with a net credit, calendarized short put vertical. Naturally, I'm not collecting much credit here on fill, but I'll be looking to roll the short put aspect over time to collect additional credit, and look to manage it for a take profit that's at least one-third the width of the spread.
AMEX:GDXLong
by NaughtyPines
2
THE WEEK AHEAD: USO, XOP, XLE DOWNWARD PUT DIAGONALSWhile I'm waiting for my August monthly premium selling plays to grind out, I'm pounding the pavement for potential directional plays to get in on. Late last week, I shorted TLT at the 122 horizontal resistance level I alerted last week via the inverse TBT, (See TBT Upward Call Diagonal Post Below), so I'm looking for fun in other places, one of which is in USO, XOP, or XLE (pick your poison). Granted, USO is pesky and hard to work with due to its size. Nevertheless, it's a good small underlying that small accounts can potentially work without it causing too much pain in the event things don't go your way. This week, I'm eyeing the resistance level at 16 for a long-dated bearish assumption setup. Naturally, you can do a risk one to make one, static one-off spread to play it (i.e., a short call vertical or a long put vertical wrapped around 16 if we hit that level), but I generally opt for setup flexibility in the event I feel I need more time for the play to work out and/or to reduce cost basis, and my go-to setup for that is a diagonal. Pictured here is an Oct/Jan 14/19 downward put diagonal, with the following metrics: Max Loss on Setup: $370/contract Max Profit on Setup: $130/contract Break Even on Setup: 15.30 vs. 15.06 spot Debit Paid/Spread Width Ratio: 74% Take Profit: 20% of debit paid or $74 Naturally, if USO gets to 16, some adjustment to the setup will be required, so this is just an example of the setup I would use (i.e., (1) setup break even at or above spot; (2) debit paid/spread width ratio of <75%). The other thing to note is that I'm not particularly fond of going out to October for the front month. Currently, however, no Sept expiry is available and the Aug 17th 14 short put strike is paying a paltry .20. Consequently, I can potentially see (a) just buying the ~90 delta long put back month if we hit 16 and then subsequently legging into the short put aspect on a meaningful drop; or (b) buying an Aug/Jan setup in spite of the paltry .20 received for the 14 short and then rolling the short out in time to bring in more credit if we get a drop in price such that the 14 strike brings in a significant credit (I generally opt for the latter; some cover is better than no cover at all, even if it is a lousy $20)). Natural alternatives would be a similar setup in XOP on a hit of overhead horizontal resistance at 44.50-45.00. There, however, I'd probably go with my standard "skip month" diagonal: preliminarily, the Aug/Oct 41/48 costs 4.84/contract to put on, has a nice 2.16 max profit on setup, a break even of 43.16 versus 43.06 spot, a debit paid/spread width ratio of 69.1%, and a 20% take profit of $97/contract. Similarly, XLE overhead resistance is between 79 and 80: preliminarily, the Aug/Dec (no October monthly available) 73/86 costs 9.86/contract to put on, has a max profit on setup of 3.14, a break even of 76.14 versus 75.94 spot, a debit paid/spread width ratio of 75.8%, and a 20% take profit of $198/contract. That 75.8% metric is a bit more than I'd like to pay, but the trade off is having more roll opportunities to reduce cost basis and improve my break even. OTHER PENDING ALERTS: IWM SHORT, DOWNWARD PUT DIAGONAL/POOR MAN'S COVERED PUT AT ~170 or QQQ SHORT, DOWNWARD PUT DIAGONAL/POOR MAN'S COVERED PUT AT ~177 (PRIMARILY TO ADD SHORT DELTA TO COVERED CALL PORTFOLIO). GLD BULLISH ASSUMPTION SETUP AT ~115 OR GDX BULLISH ASSUMPTION SETUP AT ~21.
AMEX:USOShort
by NaughtyPines
1
TRADE IDEA: TLT AUG/SEPT 120/27 DOWNWARD PUT DIAGONALShort on strength/horizontal resistance ... . Metrics: Max Profit on Setup: $208/contract Max Loss on Setup: $489/contract Break Even: 122.08 vs. 122.11 spot Debit Paid to Spread Width Ratio: 489/700 = 69.9% Notes: This assumes that this level (122) sticks around or is available at NY open. Ideal profit would be ~20% of what you put it on for (.20 x 4.89 = .98/contract). Roll short put out on significant decrease in value (generally 50% max).
NASDAQ:TLTShort
by NaughtyPines
OPENING: TLT AUG/SEPT 119/126 DOWNWARD PUT DIAGONAL... for a 4.83/contract debit. Fading the treasuries move higher ... again. Here are the metrics: Max Loss On Setup: $483 Max Profit On Setup: $217 Break Even on Setup: 121.17 Debit Paid/Spread Width Ratio: 69% Theta: .32 Delta: -42.26 Notes: Will look to take profit at 20% max. Ordinarily, I like to do these skip month (e.g., Aug/Oct) to give me an additional roll opportunities, but wanted to keep things small (going out farther in time requires a wider spread to achieve a break even at or above spot). The Aug/Oct setup would be the 119/129 for a 7.72/contract debit, max profit on setup of 2.28, debit paid/spread width ratio 77% ... .
NASDAQ:TLTShort
by NaughtyPines
3
OPENING: SLV JULY 20TH 16 SHORT/OCT 19TH 13 LONG PUT DIAGONAL... for an .79/contract credit. Taking a directional shot here on silver weakness. In essence, it's a synthetic covered call with the short put aspect of the setup around the 70 delta. The long put is thrown in to bring in buying power effect over the naked for those that are working in a cash secured environment. On margin, you won't be saving much in buying power by buying the long ... . Will look to take profit on just the short aspect at 50% max and look to reuse the long if another bullish assumption setup presents itself between now and October ... .
AMEX:SLVLong
by NaughtyPines
OPENING: SPY MARCH 29TH 273 LONG/MARCH 16TH 276 SHORT PUT... for a .20/contract credit. As a diagonal, there aren't many metrics to talk about, since outcome is almost wholly dependent on price action and how much you can get in credit on roll of the short aspect of the setup. However, the setup was 9.18 delta long and had a positive theta metric of 3.09 on fill ... . Here are the possible scenarios: 1) Price rips to the topside such that both the long and short aspects approach worthless. In that case, I probably just take home the paltry .20 in credit I collected at the door, and reset the setup if I'm still keen on working this type of setup. 2) Price stays largely where it's at with the short put going to worthless and the long put retaining a good deal of its value such that I can exit the short for near worthless and sell out of the long for a credit. 3) Price implodes through the short put's break even. In that case, I've got some work to do, which will generally involve rolling the short put down and out for a credit and potentially rolling the long down and out for a credit to give myself more time to work the short end of the stick (since I haven't given myself much time here between the long and short -- a scant two weeks). I've set up a GTC order to take the entire diagonal off at a 1.39/contract credit which would result in a profit of 50% of the value of the long on fill (one-half of 3.17 is 1.59 minus what I got paid at the door .20). And we'll see how it goes ... .
AMEX:SPY
by NaughtyPines
OPENING: XOP JUNE 15TH 31 LONG/MARCH 29TH 34 SHORT PUT DIAGONAL... for a .15/contract credit. As with any diagonal, there aren't many metrics to provide, since max profit is dependent on the number of rolls undertaken, the credit received for each, as well as whether the long maintains value. However, the max loss is the width of the spread (3) minus the credit received for the setup (.15) or 2.85. This is the max I can lose if I do nothing, and the setup goes to max loss. Similarly, my max profit is a whopping .11 ($11)/contract if price rips totally away from the setup, the long and short go to worthless, and I don't roll the short to take in more credit. The particular thing I like about these setups is flexibility and the number of ways in which they can be worked intratrade: (1) Allow the short put to go to at or near worthless (.05 or less), and then sell the long for a credit if it has held value in excess of the credit you received to put the trade on. The difference between the credit received for selling the long minus the credit you received to put the trade on is your profit (minus fees and any debit you paid to close the shortie). (2) Work both ends of the candle. Roll the long down on significant increase in value to lock in gains and roll the short put down when you're able to do so for a credit. Alternatively, roll the short put out for duration and credit on significant decrease in value, leaving the long in place. Cover the setup for a debit that is less than total credits received. The difference between total credits received and the debit you paid to exit is your profit. Keep in mind that if you burn both sides of the candle, you'll be widening the spread and therefore increasing buying power effect and max loss. (3) Work the short put only. Roll the short out "as is" on significant decrease in value (I ordinarily do this at 50% max) and exit the trade when rolling is no longer productive (usually when price has ripped away from the setup). If price breaks the shortie, allow as much extrinsic to bleed out of the contract as you can, and then roll for a credit while examining whether you can strike improve on roll. This is the generally accepted approach to these setups. The width of the spread (and therefore the buying power effect) remains constant throughout the process or decreases if you're able to roll the shortie down for strike improvement and a credit (decreasing the width of the spread and therefore max loss). And we'll see how it goes ... .
AMEX:XOP
by NaughtyPines
OPENING: AMD AUG 18TH 13 SHORT PUT/OCT 20TH 11 LONG PUT DIAGONAL... for an .11 credit. Here, I'm looking for a defined risk strategy with which to play earnings that doesn't subject me to the risk on both sides if the underlying rips hard in a larger than expected move. There are several different ways to play these: (a) Wait for the short put to approach worthless. At that point, examine what the long is worth. If its worth is "satisfactory," cover the short at near worthless and sell the long. Your profit will be total credits collected (original setup credit + what you got in credit for selling the long) - minus debits paid (what it cost to cover the short). (b) Work it like a calendar, rolling out the short put for a credit when it has lost a significant amount of its value (a good rule of thumb: 50%), covering the setup as a unit for a debit that is less than the total of all credits collected. (c) Work it like a calendar, but continue rolling the short put out toward the back month, until -- on final roll -- you roll the short put into a vertical spread, which you exit as you would a normal vertical spread. Profit is the amount by which total credits received throughout the life of the setup exceed any debits paid. In the event that the price of the underlying breaks the short put strike, look to roll the short put out for duration, credit, and strike improvement. You can naturally also roll the long away from current price to lock in any increase in value it experiences, for which you will receive a credit. You can either roll the short put "as is," roll it toward current price, or roll it away from current price depending on the behavior of the underlying; naturally, you always want to receive a credit on any roll. Keep in mind that rolling the short put toward current price or the long away from it widens the spread, and increases risk and therefore buying power effect of the setup.
NASDAQ:AMD
by NaughtyPines
1