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.