FWIW…just some random things going through my mind (scary, I know!) concerning these longer term positions I’ve been trading.
1. If the stock implodes just after setting the trade the overall position will show a big loss initially. As time goes by, further drops won’t be quite as extreme.
2. What will a synthetic look like at expiration if it’s sitting at max loss? Correct me if I’m wrong:
Long call will be at zero and the short put and disaster put will be showing a loss equal to their width.
3. By using 2 above, I can calculate how much more possible downside is sitting in the current position….if you want to assume the worst that we wake up tomorrow and the market has sold off so far that all synthetics immediately go to max loss…and can my account handle that?
4. How would I handle a worse case scenario whipsaw near the end of the trade that results in the weekly short calls being well in the money but below the core at expiration? Chances are if it gets to that point there’s a ton of profit realized already. I could take the loss on the short calls and move on down the road or…what I would probably do is roll the calls up and out and set up a new synthetic and start all over since the stock could be recovering at this point.
5. I’ve looked around online and there are lots of sites talking about the LEAP diagonals but most only concern themselves with just selling monthlies and if you’re wrong on the direction to just take the losses and look for something else. Can’t find anyone talking about selling weekly for the entire duration and the profit potential of that. Maybe I’m missing something…
Good luck everyone!