BRCM

As the June expiration approaches, it is time to Begin thinking about the roll over. The best approach is to roll over while the difference between June and July options is greatest. Focus also on the volatility of the option. It does not make sense to buy back the June options if the July options you are now going to sell are more expensive. I have said that I prefer to do the rollover one week before expiration, so it is time to start attempting the rollover at a good price for us. If the rollover does not fill today, you have plenty of time to adjust the trade, so that it gets done before the week closes. You still have Monday Friday next week, of course, so there is no rush.

Let's take a quick look at the original trade that was filled in my account (see below). As it turns out, the use of a strangle instead of a straddle as the long portion of the trade makes the put side of the trade too vulnerable to a decline in the price of the stock without volatility increase. The straddle is advantageous in cost, but has revealed a different weakness we are going to have to learn about some more.



This is the rollover I propose. As long as the volatility is still on the rise, but relatively low, the trade should still be a good bet going forward, in spite of the sideways motion of the last few days.



I suggest that we reduce the number of short puts and increase the number of short calls.



Any comments here would be very helpful.

Yesterday, Friday 10th, I completed the roll over, as the call portion of the trade was filled. Note the details of the trade below. As you can see, so far we have not much profit to show for the effort. Volatility remains low and Delta has not been strong enough. Theta has been good, since our debit has been reduced to $11381, from the original $14200. Small consolation when you realize that each leg of the trade costs quite a bit. Still, the point is to remain in the trade until there is a spike in volatility, or the stock rallies or falls below the break-even points, respectively.

The use of a strangle, instead of a straddle as the long portion of the trade has turned out to be a different animal with considerations I did not have in mind. Because the trade is cheaper to enter into in this format, we are able to increase the number of contracts for the same amount of cash. This actually increases the commission costs. Hopefully, the larger number of contracts will result in bigger gains.



The risk graph reveals that the trade is virtually unchanged in character from the original set up. Note that I reduced the number of short puts by one and increased the number of short calls by one to retain the character of the trade. As you will notice, it is Delta positive. This is because I expect a decline to result in increased volatility, but not so much in a rally. The increase in the number of short calls has added $250 cash requirement into my account. Not a big deal, but you have to be aware of that. Remember we are now short 21 calls, and the difference with the long is $2.5 (21x100x2.5=5250, vs. $5000 requirement in the original trade).



The short-term volatility has declined significantly, while the long-term has continued to increase. Hopefully the difference will become more pronounced in the days to come, and we should begin to see some significant profits.

If you have an Optionetics Platinum subscription, pay attention to the IV/SV ratios, which are also on the increase, has they have jumped above 0.