Tuesday, June 25, 2013

Added a double calendar to August option income trade

I had built half of my August option inventory since last Tuesday. Today, I added the 3rd position to my August non-directional trading portfolio. Since my outlook is bearish right now, I used a double calendar on SPX with its profit zone towards the left side. Due to the relative high volatility in the market, I was able to select a $50 width without a major sag in the middle of the DC P&L chart as shown below. Normally, the span of DC is around 30 to 40 points.

The Theta of the original SPX IC reduced to around 2 as a result of recent market selling off, even though the half portfolio of August were still profitable at the moment. The added DC bumped up the Theta by 16 and changed Vega from negative to positive 68 which is helpful in bearish market.

There is one remaining position on RUT to be added to complete the August incoming portfolio. I plan to add another DC tomorrow with slightly different option strikes if possible, in order to spread the risk further. If that happens, the targeted profit income for the month will be around $800.

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