EWY is trading over $200 now and the midpoint on exiting the $150/$155 call spread is $13.40 or a profit of $726. It seems that when the call spread is well ITM, the higher the stock goes, the lower the midpoint drops. For example, the midpoints on the AEHR and PL call spreads have both come down over the past few days as the stocks have gone higher. Wondering whether it might be a good idea to exit the EWY spread now and take the sizable profits that are on the table.
Good question, and I agree with your instinct here.
This is one of the quirks of a deep-in-the-money call calendar/diagonal. Once both calls are far in-the-money, their deltas both move close to 1. At that point, the spread is no longer helped much by additional stock upside. The value is driven more by the remaining time value, carry, IV, bid/ask spreads, and the fact that we’re long the later-dated $150 call while short the July $155 call.
So yes, it can happen that the stock goes higher while the midpoint on the call side comes down. We’ve seen the same thing in AEHR and PL. That’s not necessarily a sign the trade is broken; it’s just how deep ITM diagonals can behave as the optionality compresses.
In EWY’s case, with the ETF above $200 and the short July $155 call deeply in-the-money, we’ve already captured most of what we were trying to get from this leg. So I think taking the money here is reasonable. I'll enter a limit order tomorrow to exit slightly above the midpoint.
I thought we discussed this already, but if not: you shouldn't need a notification for this; this is just the trade filling at the exit price I left in the exit instructions in this post. I just leave these comments so I can link to them in my weekly Exits post and trade-tracking spreadsheet. If you placed the same exit order I did when you opened the trade, you should have exited the put spread at $0.20 today too.
Yeah I exited too, thanks. I did get an email for the thread you started on this post about exiting VIX, and when I went back to this post I saw this comment, so I was confused. I don't fully understand the difference between threads and comments, so I'm just trying to make sure I'm getting the pertinent notifications.
VIX seems like it's going to stay low for the next week. Since expiration is 7 days away, would you recommend starting to lower the exit price now? And change the order to cover all shares, not just half?
If you’re confident that the VIX is going to stay low between now and next week, then you might as well exit here. I think you’re probably right, but I’m going to hold this in case there’s a volatility pop between now and then — maybe the ceasefire breaks, something like that. But I’m also going to start lowering my exit price now, to $0.95.
I'm noticing a slight discrepancy in the max gains. The max losses (and, when they are included, the break even point) seem to match up. For example, for today's trades, my trading platform indicated:
- EWY max gain $1345.66 (vs. $1374 above), max loss $1020, break even $125.51
- CCJ max gain $1210.27 (vs. $1200 above), max loss $1050, break even $104.76
- AEHR max gain $1139.06 (vs. $1169 above), max loss $770, break even $34.39
- VIX max gain $3400 (matches above), max loss $600, break even $20.60 and $27.40
These numbers come from Fidelity, and are based on the max net debit shown, as of the previous day's close. It could be some of the discrepancy is due to a difference in their max gain estimate from yesterday to today. I stopped sharing their break-evens on mixed-expiration trades, because they don't seem reliable. In our trades, max losses are usually pretty straight-forward: for example, in a hybrid 4-leg combo, it's going to be the width of the put spread plus the cost of the trade.
EWY is trading over $200 now and the midpoint on exiting the $150/$155 call spread is $13.40 or a profit of $726. It seems that when the call spread is well ITM, the higher the stock goes, the lower the midpoint drops. For example, the midpoints on the AEHR and PL call spreads have both come down over the past few days as the stocks have gone higher. Wondering whether it might be a good idea to exit the EWY spread now and take the sizable profits that are on the table.
Good question, and I agree with your instinct here.
This is one of the quirks of a deep-in-the-money call calendar/diagonal. Once both calls are far in-the-money, their deltas both move close to 1. At that point, the spread is no longer helped much by additional stock upside. The value is driven more by the remaining time value, carry, IV, bid/ask spreads, and the fact that we’re long the later-dated $150 call while short the July $155 call.
So yes, it can happen that the stock goes higher while the midpoint on the call side comes down. We’ve seen the same thing in AEHR and PL. That’s not necessarily a sign the trade is broken; it’s just how deep ITM diagonals can behave as the optionality compresses.
In EWY’s case, with the ETF above $200 and the short July $155 call deeply in-the-money, we’ve already captured most of what we were trying to get from this leg. So I think taking the money here is reasonable. I'll enter a limit order tomorrow to exit slightly above the midpoint.
Out of the CCJ put spread today at $0.20.
Out of the CCJ short call today at $0.20.
Out of the EWY put spread today at $0.20.
Out of the EWY calendar today at $13.60.
Exited the AEHR put spread today at a net debit of $0.20.
I didn't receive an email notification for this comment. Is there a setting I need to enable? Substack support is not helpful with this.
I thought we discussed this already, but if not: you shouldn't need a notification for this; this is just the trade filling at the exit price I left in the exit instructions in this post. I just leave these comments so I can link to them in my weekly Exits post and trade-tracking spreadsheet. If you placed the same exit order I did when you opened the trade, you should have exited the put spread at $0.20 today too.
Yeah I exited too, thanks. I did get an email for the thread you started on this post about exiting VIX, and when I went back to this post I saw this comment, so I was confused. I don't fully understand the difference between threads and comments, so I'm just trying to make sure I'm getting the pertinent notifications.
I don't normally send out chats/emails when I lower exit prices, but since the VIX trade was a special situation, I figured I'd share it.
VIX seems like it's going to stay low for the next week. Since expiration is 7 days away, would you recommend starting to lower the exit price now? And change the order to cover all shares, not just half?
If you’re confident that the VIX is going to stay low between now and next week, then you might as well exit here. I think you’re probably right, but I’m going to hold this in case there’s a volatility pop between now and then — maybe the ceasefire breaks, something like that. But I’m also going to start lowering my exit price now, to $0.95.
Got out at $0.21 today. After today's news re the Strait of Hormuz, I think the VIX is likely to stay in the teens until expiration.
For the VIX exit plan, should that be sell 5 $20 / buy 10 $24 / sell 5 $28?
Yes.
I'm noticing a slight discrepancy in the max gains. The max losses (and, when they are included, the break even point) seem to match up. For example, for today's trades, my trading platform indicated:
- EWY max gain $1345.66 (vs. $1374 above), max loss $1020, break even $125.51
- CCJ max gain $1210.27 (vs. $1200 above), max loss $1050, break even $104.76
- AEHR max gain $1139.06 (vs. $1169 above), max loss $770, break even $34.39
- VIX max gain $3400 (matches above), max loss $600, break even $20.60 and $27.40
These numbers come from Fidelity, and are based on the max net debit shown, as of the previous day's close. It could be some of the discrepancy is due to a difference in their max gain estimate from yesterday to today. I stopped sharing their break-evens on mixed-expiration trades, because they don't seem reliable. In our trades, max losses are usually pretty straight-forward: for example, in a hybrid 4-leg combo, it's going to be the width of the put spread plus the cost of the trade.