Decided to do something slightly different in Micron than an upward call diagonal (See Post Below) ... . Here's what's important about this trade:
Max Loss on Setup: 151/contract Max Profit on Setup: Indeterminable Front Month Value on Setup: $253 credit Back Month Value on Setup: $404 debit Theta: .99 Delta: 2.92
In a nutshell, it's a fairly delta neutral, theta positive setup, with the goal being to reduce cost basis in the trade by rolling out the short aspect for additional credit. I would note that calendars are traditionally considered a low volatility environment setup, with the calendar being placed in a manner that would accommodate a volatility expansion and/or downward movement (i.e., out of the money and on the put side). In contrast, this is just a cost basis reduction setup that doesn't require the expansion or the movement ... .
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Rolling the short aspect up one strike to the 35 for a .22/contract credit to turn this into a diagonalized credit spread. Scratch at 1.29. Will continue to watch the value of the back month long to ensure that I can exit profitably if the front month expires worthless. Currently, it's still valued at 2.29 in spite of this up move.
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Rolling the March 35 to the April 34 (back to a same strike cal) for a .49/contract credit. Scratch at .80 with the back month valued at 1.87.
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Rolling the April 34 to the May 34 for a .21/contract credit; scratch at .59. 20-20 hindsight: the upward call diagonal would have done better on this ripper ... . Lol.
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Scratching this trade out for a .53/contract credit. Probably ill-conceived from the outset, since put calendars are generally a low implied volatility play. I don't do these very often, so it's a "live and learn."
Had not thought of it recently as with the recent extra volatility had deliberately backed out of doing calendars (little bit too much action). Thanks for this good reminder to take a look at them again. Some of these super high option volume/liquid stocks like MU often seem not to set up well into strategies but could change with calendar arrow in quiver.
NaughtyPines
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@Tom1trader, I haven't had a great deal of success with them (at least the low vol environment variety). Price can rip away from the setup too quickly or vol just doesn't expand as you'd like, so you're left holding the bag. Frankly, I haven't tried using them in this fashion before -- slightly ITM, but also taking advantage of the fact that the front month will decay more quickly than the back. We'll see how it goes.
Tom1trader
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@NaughtyPines, Guess ahead of even on them though I pick carefully for overall historical price movement (i.e. under 10/mo.) and look at a higher price range ($50 and above). Good luck with it!
@NaughtyPines, Just double checking metrics I look for on calendars . . (per Tammy Cahmbless on fb tastytrade discussion group, pretty much) stock >50 movement less than 10/month, good strikes to roll the shorts if necy, (this next per TW or TOS analysis, similar but shown differently . .) ratio on single ATM calendar max profit/initial debit >1 and on double where spot splits strikes >.5 - - can find cases where fill at closer to 1.5 or 2 on singles and to 1 on doubles. manage at small winners and adjust [only up to the last 10 dte] with new calendars when break even breached, further adjust drop OTM calendars when danger of whiplash seems past [huh? like somebody knows?? :-) ]. Since had commented some little success thought should add some of the why.
NaughtyPines
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@Tom1trader, Cool. Thanks. Those metrics will be handy. Are those (the >1 max profit/initial debit) for just a one-month (e.g., March/April) or do you set it up front to back so that you get a >1?
NaughtyPines
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@NaughtyPines, On setup, the front month here was 2.53 with the back a 4.04 (62.6%), with front month theta currently 2.18 to back month 1.31. The front month theta will "accelerate" running into expiry, but I'm keeping an eye on the value of the back month option since I won't be able to exit profitably unless that value exceeds what I put it on for (minus credits received on rolls).
Tom1trader
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@NaughtyPines, Like many trades patience is tough especially when even though profit can increase closer to expiration usually the risk does too so I tend to get out too soon. Easy then to get stuck where higher win rate with small profits is not enough to overcome the amount when losing. Big difference in Tammy's method (oops did not mention she stops it when VIX up as market gets too goofy for calendars) is she places a new calendar ATM when price hits a break even and it only becomes a roll (old position is left on so it becomes a double or triple) when old position is taken off (price moved far enough where its drop in value becomes more of a liability than its presence is whiplash protection). :-) Guess these would be the low volatility super trades if the dang price would just sit still!
Tom1trader
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@NaughtyPines, Looking back have been a month or better part of up to around 45 dte short and long a month later.
NaughtyPines
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@Tom1trader, Good stuff to know. I'll look for the metrics you mention, as well as the doubling up at break even. Patience is a tough thing; even though I've been doing this a long time, it's one of those areas I'm still and probably will continue to have to work on.