Coming into earnings today i had:
- 190/195 credit call spreads which were from Jan Roll
- 170/175 credit put spreads which i put on to hedge the call spreads and make an iron condor (this "hedge" helps pay for rolling the call spreads)
when you add spreads to make position an iron condor, you can add any amount of lots up to equal amount to your calls and it will not require any additional capital / margin.. since both puts and calls cant both be excersised on you..one of them will be at max profit. I add the "hedge" spreads at a lower amount of lots...so if i have 15 call spreads, i will start the "hedge" with 10lots as an example.
So, i have more calls than puts currently. if the stock moves as expected in one direction or another, my greater risk is to the upside (i lose more on call credit spreads). So to help reduce some of this risk i entered into a weekly/monthly 215 call calender.. the presumption is it moves up a little past the implied move, the weekly 215 calls (sold) lose their value rapidly(vol crush, vol suck, whatever you bigshots want to call it) and the monthly 215calls (bought) lose value alot less compared to the weeklys. You can pull up a probability calculator / graph on internet if your platform does not have it. This tool helps you determine how many lots of the calender to enter. Trademonster has this under analyse tab.So i added a 5lot of the calender.
Possible outcomes:
1. Stock stays between 175 -190 at feb opex, i close both puts and calls for profit. the weekly calender is small loss (just the amount i paid, which is insignificant to amount of profit from the puts and call spreads)
2. Stock moves down lower than 175.. I will roll the put spreads to following month. Collect max or near max profit on the call spreads and take the same insignificant loss on calender. Profits from call spread will more than pay for put roll
3. Stock moves up near 215. Take max profit on puts. roll to next month the call spreads. Take profits on calender. Put profits and calender profits pay for roll of calls to next month
would prefer either 1 or 2. i dont like having call credit spreads, i only put those only to make iron condors.. im just in a position i have to manage for a month or two to make the profit or lessen a potential loss.
1feb - stock moved down 10% after earnings.. got the down move i was looking for so closed the call credit spreads this morning. The profit from this months calls exceeded last months loss on calls that i had to roll.. so essentially flat.. remember the calls were put on last month as a hedge..stock moved up, had to roll to Feb, now closed for no loss... thats what you want to see happen when you have to roll spreads to the next month.so mission accomplished..sometimes you just have to take a loss but most of the time you can manage the position to get a profit the next month or to lessen the amount of loss.
1Feb part 2 - also took the opportunity to adjust the 170/175 credit put spreads. i rolled them down and out to the MAR 165/170 for a small credit and added 2lots to size.. so instead of playing chicken with the 175 level for the next 17days and having no hedge on (the call spreads) for this month i figured it was prudent to get that extra 5bucks in distance on the puts, gain another month, and have the flexibility to add march calls to make iron condor.
Update 3 - 2 FEB - stock has bounced back from earnings selloff and today i sold some MAR 200/205 call credit spreads making the position into an iron condor. for max profit on entire postion stock needs to close betwee 170-200 at march opex. because i already had credit put spreads these added call spreads require no additional margin/capital.. now in wait mode for a month for time decay.
9mar update - closed the position. might be hard to follow this position if you have not been following along from the start but this morning i started with the same positioning i had on the 2feb update:
- 10 Mar200/205 credit put spreads
- 15 Mar165/170 credit put spreads
exactly what i needed to happen, did..that is nothing..stock stayed within a range, time decay kicked in and with one week to Mar Opex i closed:
- credit call spreads for .06 for 91% gain
- credit put spreads for .12 for 92% gain
Summary:
- Mar200/205 spreads, sold for .65, closed for .06 = profit $590
- Mar165/170 spreads, sold for 1.58, closed for .12= this month profit =$2190 minus loss to roll from Feb ($880) = $1310 total profit for 2months
Total profit for credit spreads for 2months of work =$1900
the takeaway from this is that you can sell a credit spread and if stock moves against you, you do not just have to close at opex and take the loss, you can repair what appears at first glance to be a $4000 loser into a winner by rolling to next month and / or turning into an iron condor. even with 80%+ probabilities in your favor, sometimes you have a loser..but even then you can usually adjust the trade like i did to come away with a profit or reduce the loss
