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