prvtrader 12:52 pm on Tuesday, March 8, 2016

FB Diagonal going into Earnings.

FB earnings are 42 days from now. So to take advantage of the increase in IV I bought a Diagonal.
BTO Apr 22 FB 103 Call and STO Apr 1st FB 110 Call for $5.67

sasquatchonline 1:09 pm on Tuesday, March 8, 2016

I find your style of trading very interesting. I don’t really have a handle on calendars or diagonals, but it seems like there’s a lot of possibility for management. It also seems like there’s a lot of possibility of losing track of profitability if you start mucking around with it. How do you manage it? Roll near calls until you hit your target? What is your target?
- prvtrader 1:23 pm on Tuesday, March 8, 2016
  
  A Diagonal is a directional, limited risk, limited profit strategy; in that respect is similar to a vertical spread. However, a Diag is Theta and Vega positive while the Verticals are Theta positive but Vega negative.
  The idea is to take advantage of the increase IV in the further out month and take advantage of the faster Theta decay of the near month.
  This strategy is very flexible since you can sell several options against your long position in consecutive weeks; but this will happen only if the underlying stays stagnant or move very slowly against or in your direction. When the underlying moves in your direction, it is better to just close it and take your profit.
  Like all strategies, if the underlying moves fast against you, Delta will overpower Theta and Vega and the position will lose. You could keep on selling options against you long, but at the end you’ll end up with a loss; it would be a lot smaller than the original, but a loss anyways.
  I normally buy an option with at least 60 DTE or more (unless playing earnings) at Delta 65-70, and sell another with 25-30 DTE at Delta 25-30.
  I take profits at 60% of max unless the underlying has not reached its assigned target.
  Targets come from the Fibonacci extensions and retracements.
  When the position loses 30% I either buy back the short and sell another, if there is a chance the underlying will turn around, or take the loss.
  Hope this helps.
  - sasquatchonline 1:36 pm on Tuesday, March 8, 2016
    
    Thanks. I knew the basic idea about IV expansion, but I didn’t know exactly what you were looking at otherwise.