Adjustments of Diagonal Spreads to Meet New Market Outlook

Yesterday, the stock market delivered the 6^th consecutive rises, accompanied by higher volume. It also broke prior high to signal the resumption of the powerful uptrend.

Both QQQ & SPY showed their 2 month long uptrend channel lines, after a confirmation by rallying from the lower channel line 6 days ago. If the momentum is strong, I think the market indices will grind higher along the upper trending channel line as shown below, with some minor pullbacks along the way.

After hedging positions with short calls on the scare of presidential impeachmentsell-off 7 trading days ago as described in a previous post, the stock market started rising gradually, with declining volume for 5 days.  Therefore, I did not uncover the short calls until the market’s rise with higher volume yesterday.

Typically, market would pullback after 8 days for consecutive rises. On the 6^th day of the continuous rise, I decided to roll up and out the short calls for most of my diagonal call spread positions expiring from June 9 to June 16. The new short call options have 22 days to expiration and Delta around 0.25 as usual.

Due to the large price hikes, the diagonal spread positions were on the border of Delta inversion before the rolling. It meant overall diagonal position could not profit even though there were good amount of price increases at the inversion day. 

The new positions are summarized below for reference.

Stocks	Existing Calls	New Short Calls	Notes
NFLX	Jun9 $162.5; $1.63	Bought back for $4.20	Left naked call Sept15 $145 as it broke out $161 resistance with high volume
EEM	Jun9 $42; $0.27		No change as it approached resistance level 41.7 without stronger relative strength
MU	Jun9 $30.5; $0.34		No change as it approached resistance level $29.5
SPY	Jun9 $239.5; $1.22	Jun16 $244.5; Rolling deficit of $2.43	Used short call with the expectation of a pullback after a 6 day rise in a roll
QQQ	Jun9 $139; $0.83	Jun16 $143; Rolling deficit of $2.04	Used short call with the expectation of a pullback after a 6 day rise in a roll

The trading plan is to uncover the diagonal spread if the market tries to pull back and rally from there again. If market continues to grind up, I’ll continue to roll up and out for the diagonal spread.