Leaving aside the newly opened February/March Double-Calendar, our portfolio of open positions is currently showing a return (realized and unrealized) of approximately 5.4% on total capital risked. That represents a Model Portfolio return of about 3.3% after accounting for the cash we kept in reserve for hedging our January portfolio and entering February trades.
As the trading week drew to a close Friday afternoon, our January positions had a slightly bearish net delta bias—which is perfectly fine when volatility risk is practically nil. Gamma, though, is another matter, as we enter the penultimate week before January expiration. With our short January call positions clustered between the 128 and 131 strikes, we’re going to have to be careful how we handle any upswing.
A week of consolidation, on the other hand, would make things easy. It would take pressure off the call side of our Jan/Feb double-diagonal and (adjusted) iron condor, allowing us to unwind the Jan 124/130/134 call butterfly hedge (or sell an iron condor against it for additional profit).
As the P/L graph below shows, our projected profit range the Wednesday before expiration is more than 7 points wide:
Again, this analysis excludes the February/March double-calendar, for the reasons discussed in the prior post. Moreover, something I neglected to mention before is that the Calendar Options strategy was developed and backtested using risk-management triggers and adjustment targets confined to trades that all expire in the same front month—yet another point in favor of managing different expiration cycles separately. But with any luck, we’ll be able to close out the January trades with a nice profit next week and there’ll no longer be an issue.