fuzzballl 11:35 am on Thursday, May 31, 2018
Tags: LEAPS ( 418 ), LongCalls ( 495 )

AMBA

#LongCalls #LEAPS – Interesting characteristic I’ve noticed about these risk analysis charts….this one is AMBA where I’m evaluating my options for next week (earnings).

If you change the strike price on the next sale the entire curve moves vertically up and and down with no change in the curve itself. The big factor for changing the chart is the number of weeklies sold. TOS is great for setting this up and then manipulating the numbers on the potential trades and seeing the exact effect.

These 3 charts are selling 3, 4, or 5, against a 5 lot with no change in strike price…

Jeff 12:10 pm on Thursday, May 31, 2018

How much do these charts really matter, though, since the short term options only are in effect for a week or so?
- fuzzballl 1:36 pm on Thursday, May 31, 2018
  
  I’ve started using them to estimate how many weeklies I can sell and not get killed by a massive whipsaw or worse yet a buyout. Remember GMCR? That would be disastrous to wake up one morning and your 50 dollar stock was now at 90 and you had that third graph.
  
  Plus…it’s really frustrating to have a stock rallying and the further up it goes the more underwater you become. It’s possible to work through that but I’m finding these to be a lot less stressful.
  - Jeff 4:31 pm on Thursday, May 31, 2018
    
    I’m maybe missing something. Let’s take GMCR example. Let’s say stock is at 50, you’re long a 2020 50 call, worth maybe 12.00. You are also short the 50 call for next Friday.
    
    In the morning, stock at 90. You have to cover the short for 40 bucks, but your long is also up as well…. your long wouldn’t be up quite as much because extrinsic value from yesterday will be reduced for a call $40 ITM.
    
    So is that reduction in the long’s extrinsic value the only reason for the curve to be going down, or am I missing something?
    - fuzzballl 4:52 pm on Thursday, May 31, 2018
      
      I think so. The near term short calls will reach a one delta before the LEAPS do (is that called gamma risk?…I’m not sure.) If the stock goes high enough they will eventually both reach one delta. At that point the losses would be capped. Here’s the same AMBA chart really stretched out to some high numbers. Eventually the losses do level out.
      - hcgdavis 7:36 pm on Thursday, May 31, 2018
        
        Yeah Gamma risk increases exponentially as you get closer to expiration which also affects the deltas more.
  - hcgdavis 7:35 pm on Thursday, May 31, 2018
    
    enter the call credit spread, buy out would be a winning lottery ticket!
    - fuzzballl 7:36 pm on Thursday, May 31, 2018
      
      For sure!