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.