SPY Trade update

On 4/21 I posted about a trade in SPY that was long Vega, short delta, along with a short straddle to offset theta.

With today’s downward move and VIX spike, our trade is doing quite well.  See the Thinkorswim analyze tab below. (Click any picture to enlarge)


Note: If you are unfamiliar with the Thinkorswim platform, usually when I post analyze tab screenshots, the lighter color blue is the one standard deviation move in the underlying by expiration of the front month options in the position.

So, now I’m thinking of adjusting this trade.  I can take off the whole thing for a quick profit or modify it.  I’m thinking the market has more to decline and thus higher VIX.  So, I want to reduce my risk and exposure to the opposite happening, i.e. reduce my short delta, and reduce my long Vega.  How is the hard question.  There are many ways to do this…

Positive delta, and negative Vega.  If you thought short put that would be right.  I also considered selling an OTM call straddle.  Both of these give me long theta. I’m going to choose the short puts to keep it a little more simple. 

The higher the strike put, the more short delta I get.  I chose to sell 5 contracts of the Jun 120 put.

This changes my short delta from –1067 to –761, still very short.  My Vega changes from 128 to 48.  This way if the market rallies and the IV collapse from today’s spike peak, it won’t hurt as much.  The new analyze tab looks very similar to the above.


Still short delta and long vega.

Below in the LiveVol Pro software, 6 month chart of IV, you can see the front month and back month IV of SPY continues to climb with today’s selloff.  It has not been this high since the major selloff in January.


As usual, I’ll keep you posted on status of this trade.

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