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The September 25-35-45 VIX call butterfly spread is only going for $1.50 but it is a $10 spread, so I like the odds here. The theta decay is in our favor. Take half off when you get a double and set your stop loss to cut and exit if you hit 50% loss.
Closing Trade (8/30/11): Sell to close VIX Sept 25-35-45 call butterfly spread for $3.70 credit or more.
Two weeks ago, we bought this butterfly spread for $1.45 exploiting huge discrepancy in options. Within a few days the butterfly spread expanded to $3.00 and since then it has been gradually expanding now at $3.70. This represents 155% profit. The idea was to bet that as overall market remains volatile, the VIX is going to remain elevated, but within a wide range between 25 and 45. This is a $10 butterfly that still has room to expand, but with 155% profit already made and several big macro catalysts lined up in September, I believe it is prudent to take the full position off the table.
Using current option greeks, the spread should slowly expand as long as shares remain between $72 and $88 with better than 4-to-1 reward over risk arriving at $80 on Oct expiration. One good thing about this calendar is that earnings are on Oct 24, which is after Oct expiration. Therefore, the implied volatility in November options should remain elevated or even rise further, which is a positive for the long leg of calendar spread.
Closing Trade (10/11/11): Sell to close CAT Oct/Nov 80 put calendar spread for $2.45 credit or better. This represents 75% profit in less than a month.
We bought the 80 strike Oct/Nov put calendar with the idea that the stock wil largely stay between $72 and $88 with maximum profit coming at $80 on October expiration. Fast forward, after crazy volatility up and down four weeks later the stock is trading at $80 as of this writing. The calendar spread has nicely expanded while the implied volatility in October has been moving down gradually, as expected.
Note that this is not a regular calendar spread in which we buy and sell the same strike in different months. This is a "diagonal" calendar spread and one of my favorite ways to trade around earnings. By selling the lower strike (170's), we are effectively cutting the cost of being long November 175's to just $1.30. That is 75 percent discount given that those November 175 calls are going for $4.20 as of this writing.
Closing Trade (10/22/10): We are closing the diagonal calendar spread on AMZN that we bought yesterday for $2.30 net credit. Specifically,
The trade was based on earnings and the event is over. No reason to extend the stay. It is time to take profits (76.9%) off the table.
The three most circulated currencies in the world (US dollar, Euro and Yen) all are being systematically targeted by central banks. The end result is investors are questioning the very foundation of fiat currency and they are flocking to gold to find safety. The trade above in gold is essentially betting on parabolic move higher in coming months. If it happens, this is $30 spread for $1.95 so we make big money. If not, set your stop loss at 50% to exit the trade.
Closing Trade (8/23/11): Sell to close the GLD March'12 210/240 call spread for $3.60 credit or more.
We bought this call spread less than two weeks ago for $1.95. This represents 84% gain. In the original note I mentioned a long list of bullish call activities over several days in GLD. Much of that bullish activity still stands, however there have been a few random noteworthy put buyers in GLD on Friday and yesterday.
VIX Call Butterfly
Opening Trade (8/17/11): Buy to open VIX September 25-35-45 call butterfly spread for $1.50 debit or less. Specifically:- Buy to open 1x VIX September 25 calls
- Sell to open 2x VIX September 35 calls
- Buy to open 1x VIX September 45 calls
The September 25-35-45 VIX call butterfly spread is only going for $1.50 but it is a $10 spread, so I like the odds here. The theta decay is in our favor. Take half off when you get a double and set your stop loss to cut and exit if you hit 50% loss.
Closing Trade (8/30/11): Sell to close VIX Sept 25-35-45 call butterfly spread for $3.70 credit or more.
Two weeks ago, we bought this butterfly spread for $1.45 exploiting huge discrepancy in options. Within a few days the butterfly spread expanded to $3.00 and since then it has been gradually expanding now at $3.70. This represents 155% profit. The idea was to bet that as overall market remains volatile, the VIX is going to remain elevated, but within a wide range between 25 and 45. This is a $10 butterfly that still has room to expand, but with 155% profit already made and several big macro catalysts lined up in September, I believe it is prudent to take the full position off the table.
CAT Put Calendar
Opening Trade (9/14/11): Buy to open Caterpillar (CAT) Nov/Oct 80 put calendar for $1.40 debit or less. Specifically:- Buy to open CAT November 80 puts
- Sell to open CAT October 80 puts
Using current option greeks, the spread should slowly expand as long as shares remain between $72 and $88 with better than 4-to-1 reward over risk arriving at $80 on Oct expiration. One good thing about this calendar is that earnings are on Oct 24, which is after Oct expiration. Therefore, the implied volatility in November options should remain elevated or even rise further, which is a positive for the long leg of calendar spread.
Closing Trade (10/11/11): Sell to close CAT Oct/Nov 80 put calendar spread for $2.45 credit or better. This represents 75% profit in less than a month.
We bought the 80 strike Oct/Nov put calendar with the idea that the stock wil largely stay between $72 and $88 with maximum profit coming at $80 on October expiration. Fast forward, after crazy volatility up and down four weeks later the stock is trading at $80 as of this writing. The calendar spread has nicely expanded while the implied volatility in October has been moving down gradually, as expected.
AMZN Diagonal Call Spread
Opening Trade (10/21/10): We are buying the following Amazon diagonal calendar spread for no more than $1.30 net debit. Specifically,- Buy to open November 175 calls
- Sell to open Oct22 (this week's expiring tomorrow) 170 calls
Note that this is not a regular calendar spread in which we buy and sell the same strike in different months. This is a "diagonal" calendar spread and one of my favorite ways to trade around earnings. By selling the lower strike (170's), we are effectively cutting the cost of being long November 175's to just $1.30. That is 75 percent discount given that those November 175 calls are going for $4.20 as of this writing.
Closing Trade (10/22/10): We are closing the diagonal calendar spread on AMZN that we bought yesterday for $2.30 net credit. Specifically,
- Sell to close November 175 calls
- Buy to close Oct22 (weekly expiring today) 170 calls
The trade was based on earnings and the event is over. No reason to extend the stay. It is time to take profits (76.9%) off the table.
GLD Call Spread
Opening Trade (8/12/11): Buy to open Gold (GLD) March'12 210/240 call spread for $1.95 debit or less.The three most circulated currencies in the world (US dollar, Euro and Yen) all are being systematically targeted by central banks. The end result is investors are questioning the very foundation of fiat currency and they are flocking to gold to find safety. The trade above in gold is essentially betting on parabolic move higher in coming months. If it happens, this is $30 spread for $1.95 so we make big money. If not, set your stop loss at 50% to exit the trade.
Closing Trade (8/23/11): Sell to close the GLD March'12 210/240 call spread for $3.60 credit or more.
We bought this call spread less than two weeks ago for $1.95. This represents 84% gain. In the original note I mentioned a long list of bullish call activities over several days in GLD. Much of that bullish activity still stands, however there have been a few random noteworthy put buyers in GLD on Friday and yesterday.
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