Tuesday, May 2, 2017

EEM Diagonal call spread adjustment as emerging market outporforms

Just 2 days after legging into a diagonal call spread on EEM, it invalidated the possible pullback sign and outperformed the general market SPY by rising for about 3 days. It looks like EEM will behave like other strong stocks that will advance for about 3 or more days and fall only 1 to 2 days at this time.

My diagonal spread short call adjustment rule dictates that if the stock has good rises and relative strength, the short call used for hedging possible weakness should be uncovered to leave the long call uncovered (naked).

Therefore, I exited the short call June 2 $41 by buying it back for $0.39. Now, the new cost of the position is $3.15 + $0.39 = $3.54. For the record, the entry cost was $3.39 and the hedge cost = $0.39 - $0.24 = $0.15 for the moment. My last trade on this position was posted here.
Looking at my other bullish positions entered shortly after the initial French election result 1 week ago, they are performing just fine. NFLX performed the best as of today since it had a good pop up yesterday. PVH continues to move in sync with XRT and is still in expected trading range. The Indian ETF EPI also outperforms S & P 500 in the last few days.

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