SPY 05 AUG Rolls

Ok, this morning SPY had gapped up to 332, a hair length away from its all time high. I thought this was likely to happen, but I had still hedged out the risk of a big downside move, while sacrificing upside gains, because I was "unbalanced" in my sold option positions, being short puts but not calls. I described this in yesterday's post.

So of course my short stock position was losing money, and I quickly closed it, taking the expected loss. But my sold put was up by a bit more than that.

I wanted to center a new straddle on $332, so I bought back the 330 put, and sold a put expiring even earlier, on AUG 5. This gave me about a extra 10 cents of theta over the AUG 7 puts, too tempting to forego. Then I sold a $332 call. In this case the AUG 7 was more compelling.
Closing the puts at a gain then subtracting the loss on the short stock yielded a small net gain of $226 on 16 positions, or only $0.14 per share. That's not much, but I'm happy for the gain when I might have faced a $2000-$3000 loss if SPY had dropped.

Because I brought my time forward, I sacrificed cash flow, on my rolled put, but by selling a new call I brought in more than I took out, even after netting out the stock sales.

size: 16 contracts

basis $48,535 or $28.56 / share
cash flow $12,945 or $8.09 / share
p&l $9,971 or $6.23 /share

My long term options are profitable by $2029, but I will not close them out, nor roll them. I'm often asked why. I would only do so if I were very bearish on the market. I'm not. I think anything can happen. Rolling long term LEAPS usually incurs quite a bit of slippage as the bid/ask spreads are much larger. I'm content to give back some of these gains if stocks move lower, knowing I will sell a lot of short term premium to more than make up for it.

SPY – Aug 3 and Aug 4 Option Rolls

On Aug 3, SPY gapped up from $324 to $328, meaning we needed to recenter our straddle from its 324 strike level.

On the call side, now-in-the-money by $4.00, we reduced that exposure by buying back the 324 strikes. This cost us $2.48 per share of loss.
This was almost entirely offset by a $2.06 gain on buying back the now deep out of the money puts. The overall loss was $0.42 per share, or
$1378.71 on our 16 contracts.

We then sold the 330 calls and puts for the same date, expiring August 7, for $5.47/share. Having just spend $6.10 to buy back the previous straddle, this caused a reduction of cash flow of $0.63 / share or $1008 for all 16 contracts.

size: 16 contracts

basis $48,535 or $28.56 / share
cash flow $15,995 $10.00 / share
p&l $8,938.29 or $5.59 /share

The next day, Aug 5, SPY seemed to want to close the gap below, testing the day's lows on 2 occasion, but rallied in the afternoon to make new highs. We chose to do the rolls in stages, first closing the threatened put side, at 14:30 when it seemed the stock would move back to previous moves. Later, when SPY reversed to make higher highs, we bought back the call. In hindsight, it would have been better to buy back the entire straddle at the same time. You win some, you lose some...

We still made a profit, namely $809 or $0.50 cents per share. I then put a limit order to sell the SPY AUG 5 put (expiring tomorrow) at $1.37, which filled and one to sell the SPY 330 AUG 7 call (3 days out), also with a limit order. Unfortunately, my call did not fill, leaving me in a lopsided short, with a bullish bias. This will act against us if the stock prices move lower overnight. but in our favor if stocks move higher, as I expect.

This is not an ideal situation, and I would prefer it had not happened. I like to make this strategy market neutral, benefiting regardless of stocks moving up or down. In order to adjust this, I looked at how many shares I would need to short in order to make this position delta neutral. I appears that a short of 800 shares would accomplish this. So I will attempt to short that number of shares after market hours using limit orders.

size: 16 contracts

basis $48,535 or $28.56 / share
cash flow $10,299 $6.43 / share
p&l $9,745 or $6.09 /share

IWM – 03 Aug and 4 Aug Rolls

I got a bit behind in my postings so I will report the last 2 days of trading here.

On the morning of the 4th IWM was threatening to breach its high at 149.60. so we closed our 145 strike straddle and shorted a 149 strike straddle. We lost $1.75 per share on the Call side, and gains $1.57 on the put side, for a net loss of #0.23 after fees.
Since we kept the dates at the shortest time interval, expiring on the 7th, we took a cash flow hit of $2.16 per share, or $7557 for our 35 contracts. This brought our cash flow down to $16,405 overall, or $4.68 per share.

Altogether we have milked $13.03 per share from an original investment of $26.61 made a little over 2 months ago.

size: 35 contracts
Long Term Hedge: $93,159 or $26.61 per share
Cash Flow to Date: $16,405 or $4.68 per share
P&L to date : $45,601 or $13.03 per share

Today, the next day, IWM breached the recent high for a second time. My technical analysis suggests it is likely to move up into the 150.50 to 151 area by the end of this week. So we rolled out our last straddle at 149 to replace it with a 151 straddle. In this case, I chose to move the date of the call back to Aug 14 to bring in more cash flow. So this improved our cash flow by $3.33 per share

This was a small loss of $268 on 35 contracts or about $0.07 per share.

size: 35 contracts
Long Term Hedge: $93,159 or $26.61 per share
Cash Flow to Date: $28,063 or $8.02 per share
P&L to date : $45,333 or $12.95 per share

Overall this strategy is performing extremely well. In the picture below, you see that we could close our long positions for a loss of $7937 on 35 contracts. Subtracting that from our gains yields a gain of $37,396 or 40% of our basis investment in just a few months of milking our cow.
Of course we will not close these positions but rather will continue to milk it for another 9 and 1/2 months.