At Friday’s close, our open SPY May/June 131/135 double-calendar was about at breakeven, and delta as a percentage of capital at risk was roughly 2.3%. Our portfolio (position) vega was approximately 5.5% of capital at risk. In short, we’re very well-positioned for the coming week.
The plan is to enter a second May trade this week, but only if SPY climbs above about $134.40 or falls below about $130.60. We still have more than four weeks until May expiration, so there’s plenty of time to avoid over-trading and stick to our strategy—which includes rules for distributing risk rather than piling on gamma around the same strike. This sometimes requires patience and accepting the fact that much of our capital may lie fallow in some months…but recent results, as well as backtesting of the latest refinement to the Calendar Options strategy, reinforce our conviction that above all, proper risk-management is the key to success in options income strategies.
The XLE Supplemental Trade we opened Thursday was filled well below the mid-price—which suggests that a big player is expecting a significant move. Nonetheless, we went ahead with the trade on the principle that the best fill price factors in that risk, and our current risk-management strategy has a track-record of handling volatility quite well (not as well for individual stocks and illiquid ETF options, but at least for very liquid ETFs).
Shortly before the bell Friday afternoon, our XLE May/Jun 73/75/78/80 double-diagonal was showing a negligible unrealized loss, with beta-weighted delta in proportion to capital at risk at about –0.8% and vega per dollar at risk at about 2%. Here, too, we’re planning to open another position this week, if XLE rallies past about $77.80 or falls below $74.25.