ASML – an interesting observation:

Posted by: Admin: "The Vol_Trader"  //  Category: Trade Management

Today, ASML is up 1.37% as I write.

Even though the underlying is up a lot, my long Jul $32.50 and $35 calls are actually down. This is because we are very close to expiration and theta and vega are working against them.   Remember, as the market goes up longs sell their put protection causing IV to drop.  As the puts lose so do the calls due to put-call parity.

My short Jul puts are up, obviously because then are long delta and short vega, both working in their favor.

Interestingly, my long Oct $35 puts are up and my $30 puts are about even.  So the underlying is up and so are the long puts, what gives?  VEGA!  Someone is buying Oct puts as the underlying moves up and they think they’re getting a discount on this stock that is in a downtrend.

With 16 days remaining in the Jul expiry most longs would not opt to buy Jul put premium as protection and go further out.

ASML – a trade management update.

Posted by: Admin: "The Vol_Trader"  //  Category: Trade Management

I originally put on a diagonal trade with multiple strikes in ASML on 6/17/2010.  See that trade CLIICK HERE:

Then, on 6/24/2010 I posted an update in which I bought calls as upside protection, CLICK HERE:

I originally put on the trade with ASML trading around $30.30.  ASML quickly moved up to a high of $31.41 in just two days producing unrealized losses.  From then on, things started going more in our favor.  As I write, ASML is at $28.20.

Yesterday produced a nice gap down day.  Between yesterday and today I took off a few spread contracts in both spreads for a nice profit.  Here’s what happened:  The long Oct puts benefited from their short delta AND their long Vega while the short Jul puts have benefited from their long theta and hurt by their short Vega and short delta.  The profit on the long Oct puts is significantly more than the loss of the short Jul puts. 

Originally I put on the Jul/ Oct 27.5 / 30 put diagonal for $2.10 debit and sold it for $2.69 credit, profit $0.59 (+28%) per spread.  I put it on 24 times and have sold 5 spreads so far.

I bought the Jul/Oct 30/35 put diagonal for $4.40 debit and sold it for $5.00 credit, profit $0.60 (14%) per spread.  I put this one on 13 times and have sold 5 spreads so far. 

Currently, I’m in no rush to get out as I’m very close to my short strike and collecting lots of theta as Jul expiration is only 16 days away.  The Thinkorswim P&L chart looks like this: (Click any picture to enlarge).


Note, the Thinkorswim analyze tab, unfortunately, does not have the ability to show profit and loss due to previously closed trades, only currently open positions.  There’s a way around this I’ll post at a future time if anyone is interested.  The above chart does not take into account the previously closed 10 spreads.

The Calls that I bought as upside protection obviously did not come into play and are a write off as insurance not used.  I’m okay with this.  Just like auto insurance, you hope you never need it.

Again, I’m in no rush to sell more as expiration comes closer.  I like to identify risk throughout the course of a trade.  The only major risk now is a collapse of Oct IV that could possibly hurt this trade.  In my opinion this is a very small risk but I’ll monitor and get out if I see a decreasing  trend in IV forming.  Also, if there is a Moderate(most likely news driven rally) in ASML my short delta will hurt a bit. If there is a major rally in ASML my long calls will benefit me but a drop in IV will still hurt.

Not a trade recommendation.  For educational purposes only.  Legal disclaimer, click here.

Guest Post

Posted by: Admin: "The Vol_Trader"  //  Category: Trade strategy

image I am honored that Mark Sebastian at Option911 blog asked me to do a guest post again.

Please see his site for an article on using puts and put backspreads to protect a long stock portfolio.

ASML update

Posted by: Admin: "The Vol_Trader"  //  Category: Uncategorized

On 6/17/2010 I put on two diagonal spreads in ASML.  (Click here to see the original post.)

Unfortunately, I put on the post right at the bottom price for the day.  Subsequently, ASML moved up the next two days to a high of $31.41 and past our upside breakeven point.  I didn’t like this large upside risk so I decided to limit it. 

In order to limit upside risk I decided to buy some Jul calls.  I choose to buy ten $32.50 calls for $0.45 and twenty five $35 calls for $0.10 (Total $700).

These cheap calls give me excellent protection in the face of a big rally.  In hindsight, they would have been even cheaper had I bought them when I placed the initial trade, but I’m okay with spending money for good protection.

These long calls will allow me to exit the trade at my breakeven with a substantially smaller loss while still allowing me good profit to the downside, i.e. cheap insurance.

The new P&L chart looks like this: (click any picture to enlarge)


At the current IV, if I stop out at $32 I’ll lose around $800.  Prior to buying the calls the same trade would lose $1,800.  That’s good use of cheap insurance in my opinion.

Additional note: Although I am okay with losing the entire premium in my long calls for protection, as the market goes down my long calls will benefit from being long Vega.  This will allow them to maintain some premium and I’ll take them off as I take off my diagonals and don’t need them for protection any more.  Small amounts of money in question, but every little bit helps.

(This is not a trade recommendation, it’s for education only.)

ASML – ASML holding NV ADS – Trading Horizontal Skew

Posted by: Admin: "The Vol_Trader"  //  Category: Volatility Trades

As you have probably already have seen in my trade postings (for educational purposes only, not trade recommendations) that I like to try to start every trade with a slight advantage based on Volatility.  I always like to try to sell higher Vol options and buy lower Vol options to hedge.

Today, I ‘m trading horizontal skew (from month to month) .

I used LiveVol Pro scanner to find “High Put Volume”.  I found ASML.

Below is the LiveVol skew chart: (click any picture to enlarge)


The trade: –24 Jul $27.50 puts, –12 Jul $30 puts, +24 Oct $30 puts, +12 Oct $35 puts.

Originally I had modeled and considered the Jul / Oct $27.50, $30 put diagonal but it was Short theta from the start and I wanted a little more upside cushion so I added the $30 / $35 diagonal to move the breakeven up a little more.

You clearly see I’m buying much lower IV in Oct and selling higher in Jul. I’m selling 47% and 42% IV and buying 38% and %35.

I’m short delta, short gamma, long theta, short Jul Vega, Long Oct Vega.

The Thinkorswim analyze tab looks like this:


ASML closed today at $31.01.  I managed to buy my short delta trade near the low of the day unfortunately. 

As the underlying went up, Jul IV came down relative to Oct.  The trade is already losing but not as much as the model had predicted due to this. 

Exit strategy: I’m keeping the $32 level in mind for my mental stop price.  At Current IV that equates to around $1,500 loss.  I’ll start taking off contracts for profit at around $29.  As usual, I’ll take off small amounts of spreads at a time as the underlying moves down.  As long as the underlying is below $32ish, I’m positive theta and am in no rush to sell.

I’ll update this trade as it plays out.