The increase volatility in the front month options is not so high in the long-term options so it makes sense to sell back month options, if one wants to remain in the trade. For those who do not want to risk any further, exiting the trade completely is quite acceptable. In fact, cash in had is always better than cash at risk.
Toward the end of the day, yesterday, YHOO began to decline strongly until forming an "engulfing" candlestick pattern, which is quite bearish, and in my experience, highly reliable. So I sold SOME of my calls, thinking that YHOO would open lower today. It did, and now my position is quite bearish. Now remember, I don't like playing calendars, and I like the neutrality of the PCCRC, so I might sell puts too...
If you are not confident about what I have just described, consider exiting the trade. There is no reason why the PCCRC should be hard or restricted to full-time traders. If you have a day job, simply exit the trade, and start looking for the next opportunity. There is always lots of them out there.
3 comments:
Juan,
Although IV/SV for YHOO was <1, IV for the >90 Days option was in the high end over 6 months range. What was the reason for entering YHOO?
I put this on Platinum and instead of selling front month, I sold 2 long calls on 26 Oct and 1 on 30 Oct; the graph looks a lot better.
Mary
By selling front month, I leave open the possibility of reducing the number of shorts for Dec, making it once again bullish. But there is nothing wrong with what you did. You can also look at the two possibilities (selling front month and back month) and select the one with the highest IV. A rollover is other possibility, if the Dec. have higher IV than the Nov.
I will examine your suggestion in detail, and get back to you.
On the 23rd of October, it had been a few days since YHOO had reported earnings. The IV had decline sufficiently, and the IV/SV was below one. The stock came to my attention from my high flier search.... (I look for stocks with the highest performance over the last 90 days. YHOO had gone from $23, to just over $30, an increase of 33%.
Thank you Juan. I appreciate that there are more than 1 way to take profits.
Mary
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