May 16 - Buffett likes AAPL

Busy day for me!  I closed a number of positions.  See my updated P/L.

AAPL

Thanks, Warren for saving my AAPL spread.  AAPL surged 4 percent today and closed at $93.88 after Berkshire's announcement that it has built a $1.1 billion stake in the company.  This move helped my AAPL calendar which had an average front-month strike of $94.25.  I exited this calendar (27% gain on initial debit) and I also bought back my June 90 short puts (46% gain relative to initial credit).

POT

I closed my short POT strangle.  The profits are just enough for three lattes at SBUX.

GOOGL

I closed my short May 720 put for a small profit.  This position was to add some +delta to my GOOGL position.

I had an order to sell my calendar at the market mid-point for most of the day but never got filled.  I tried legging out of my GOOGL calendar by buying the short side first.  That got filled but I'm left open on the long going into tomorrow.  I'll probably regret this, but it gives me second thoughts about GOOGL spreads in the future.  It's just not liquid enough and the B/A spreads are big enough to drive a truck through.  If GOOGL gaps up tomorrow--great!  If not, chalk it up to a lesson learned on the perils of the lack of liquidity of GOOGL options (or my stubbornness to offer below the middle of the market).

My long call spread is also still open.  All in all, I'm currently very long GOOGL right now.  Go GOOGL!

MCD

I added to my MCD calendar with a debit of $0.80 on the June/July 130 puts which I'm very happy with.  The short side is also made up of some May 129 puts to bring my weighted-average short May strikes to $130.  I'll be happy if MCD stays where it is for the balance of the week.  I really like my MCD setup right now even though it's showing an unrealized P/L.

May 14 - MCD un-contango'd

Earlier in the week, I entered into a time spread with MCD with front-month strikes of 130 (June) and 131 (May) and a back-month (July) strike of $130 with MCD trading around $131 and change.  The debit on the June/July 130 spread was $0.88.  Fast forward a few days and the trade worked perfectly--the underlying dropped a few dollars and IV increased.  The position should show a small profit, right?

Except for one thing--the options got un-contango'd.  The IV of the June options increased more than the IV of the July options.  The positive horizontal skew disappeared.

MCD implied volatility (1 month and 1 week)

This caused the spread (June/July 130) to shrink to $0.73!

Closing option quotes (last, change, bid ask)

Positive horizontal skew or increasing IV with longer dated options is typical with no pending major announcement such as earnings.  As you can see in the first chart above, MCD exhibited negative horizontal skew leading into earnings.  Skew flipped to positive once earnings were released.

Once I'm in the position, I generally don't care about the IV of the front-month options.  I typically hold them until 4-7 days until expiration, so the IVs don't really have a large influence on the value of the option (relative to the back-month).  But in this case, I'm tempted to add to my position given the un-contango'd (loss of skew) nature of the options.  One positive takeaway is that I've spread my short options between May and June expiry.  Hopefully, the June options will maintain their high IV until I roll the May shorts into June which I'll do some time next week.

May 9 - For the love of calendars

It was the summer of 1998--the summer before my first year of university.  I entered into my first options position.  It was a calendar spread on Dell Computers.  I think DELL was trading at around $116.  Earnings were scheduled to be announced after-the-bell on the Thursday of the week of the expiry of the short leg.  I remember the September 120 call was $7 and change and the August 120 call was $4.30.  I opened the spread with 16 DTE on the August contract.

DELL headed straight downhill.  I was bleeding money despite the volatility spike (I paid little attention to IV anyways at the time).  I think DELL flirted with $100.  My position was way out-of-the-money.  I remember watching the Nightly Business Report on PBS and the blowout earnings report.  The next day, DELL spiked to $119 or so.  Perfect--I could close out my spread for a nice gain.  But I didn't.  I held on to the following week.  The next Monday, DELL opened at around $123.  The short August contract expired and I sold the long September contract for $7 and a bit.  With four contracts, I ended up making $1600 on the trade.  As an options-virgin no more, I was on cloud nine.  I had no idea what I was doing.  Reminds me of other things that year...

Low IV environment

Maybe it's that first experience, but I've always had an affinity for calendar spreads.  With the low IVs we're seeing these days, there's no better opportunity to open a position in one of my favorite strategies.

GOOGL

Last Thursday, I legged into a GOOGL calendar (May/June 715 call) for a net debit of $7.10 x 4 contracts.

• Bought June 715 calls @ $19.40 x 4
• Sold May 715 calls @ $12.30 x 4

IV is 20% with a six-month range of 17-40%.  I chose calls simply due to improved liquidity versus puts.  However, if volumes are equal, I prefer the put side to avoid any headaches with early assignment.

GOOGL closed today at $729.  I'll get out if it goes much higher, otherwise I'll hold on until early-mid next week when the May contracts expire.

AAPL

In a similar vein, today I legged into an AAPL calendar/diagonal.

• Bought June 95 calls @ $2.07 x 20
• Sold May 95 calls @ $0.88 x 5
• Sold May 94 calls @ $1.30 x 15

Low IVs are the theme.   AAPL closed today just under $93.

MCD

• Bought July 130 puts @ $3.30 x 25
• Sold May 131 puts @ $1.29 x 10
• Sold June 130 puts @ $2.42 x 15

MCD closed today at $130.80.

Strangles for fun

I shorted a couple of short-term strangles to get my feet accustomed to undefined risks.

• POT: Sold May 15/16 strangle for $0.43 x 3
• SLW: Sold May 18/19 strangle for $0.95 x 3

IVs for both in around the middle of their six-month range.