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Trying to play a Vol Differential for a 1 day trade.

7/2/2010 Update: So here is an updated profitl loss graph of the original position as we head into the close:

Take note of the change in the profit potential. At $102 when I first put this on I had a max profit of about $1k and now it has shrank to $100. The vol collapsed just as I thought on the front month, but collapsed a lot faster then I thought on the long options. In the future I will need to find a better way to hedge the short puts sold. That may mean that I have to go a little further out in time to buy the long puts. With that said I did however roll the long puts into vertical spreads before vol completly collapsed this afternoon, and you can find the new P&L chart below:


I really did not want to take risk into the weekend until I saw todays price action. So I rolled in basically a double vertical spread. I start making money below 102 and max out at 99 on the SPY. My thesis is we get there next week. But I don't have much time to be right. So Like I said in my previous comment, I am taking a bit of a gamble on this one.

End of day Greek update:

Above I am trying to keep a record of how the greeks changed with the passage of time. Since I am using weekly's this will be easy to do in a short period. Theta nearly collapsed in half while my Delta exposure quadrupaled due to my Gamma position and how close we are to expiration and to the ATM strikes. My short options lost 60-70% of thier value today and my long options lost about 37-43%. The implied Vol differential also shrank from a spread about 7.5% to a spread of about 3%.

Update: Here are the Greeks on the position. Take notice of the large Theta position.




I bought the 100 and 102 calandar spreads for $0.86 each. The options that I sold expire tomorrow and the options that I bought expire next week. So I constructed this trade with all weekly options. There is about a 7.5% spread on the vol for the short vs the long puts. The shorts have the higher vol.

My break evens by tomorrow are 98.45 and 103.58. I could not help myself, this trade just stuck out to me and I like the RvR for one day.

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