A few members have noticed that our SPY May/June 120 call calendar has reached a profit of 25%—which used to be our target exit point. As Calendar Options evolved from a position-focused strategy to a portfolio-oriented one, we’ve adopted additional ways of managing risk, and the 25% exit rule has become less important. In fact, it was not part of the latest version of the strategy that I backtested earlier this month.
Nevertheless, it was included in the original strategy for a reason, and it still serves as a good reminder to take a look at your overall portfolio risk profile and consider whether you’re comfortable with your current level of gamma. There’s certainly nothing wrong with locking in a 25% profit on a trade after just 2½ weeks, thereby reducing your gamma and vega exposure as well. An alternative would be to sell half of the position and keep the other half going along with the official newsletter strategy.
Note, however, that closing some or all of the current position would require adjusting, or perhaps not participating in, any additional newsletter trades we might make for the May cycle. It is especially crucial for members who autotrade to talk with one of your broker’s autotrading specialists about any manual changes you’re considering making to an autotraded position.