We’re going ahead and closing our May double-diagonal position to reduce our upside risk:
Day limit order
Buy to close 2 DIA May 82 puts
Sell to close 2 DIA June 77 puts
Buy to close 2 DIA May 84 calls
Sell to close 2 DIA June 89 calls
for a net credit of $0.35 or better.
Note that the 2 contracts per leg above represents our entire position.
Analysis: By rolling up the put side of this trade last week, we boosted our risk curve and put ourselves in a better position to make a defensive adjustment, if necessary. But now, with fewer than four days left until expiration, adjusting again is not a very attractive option for this position. Buyers have been coming into the market on every dip, making our increasingly negative portfolio delta more and more of a liability; therefore, we decided to take some of our risk off the table by closing the position with the highest delta at the first opportunity to do so with a profit. At the trade-alert price of $0.35, we’re booking a return of 2.3%…even after commissions, we’re pretty close to breakeven.