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Trading Group 2 April 27 2017

  1. I watched Dan Harvey's presentation of his SPY put diagonal trade and that reminded me of another trade done by Ryan Jones
    Dan was saying he tried just about every version of the diagonals so I wanted to ask him or anyone else who knows what is the opinion of Ryan Jones and his spy CALL diagonal trade
    This is not an example from him but it's very similar Buy the spy 242 call with may 26 expiration and sell the 241 call with the may 19 expiration
    for 0.14 cents for one lot or $140 for 10 lot and $1000 for margin and make even more if SPY stays where it is or goes slightly higher
    This is completely protected on the downside so the only risk is on the upside
    The only problem I see is that in this low vol market the spread is too close so it would not take much to put this trade in jeopardy but because of the slow decay in the expiration line you would not loose as much if this was a regular vertical
    He has some other rules for setting it up but that is the basic shape of it
    Probably works well at the end of a bull market or in a higher vol market so I would say it would have a limited use in the current market
    I was wondering if anyone has any opinion on this type of trade ?
  2. Yes, I am familiar with the Ryan Jones trade you mentioned. It's a good one, but works best in the circumstances you describe. As you know, there are many ways to set up time spreads. The choice depends on trader directional bias, volatility considerations, and risk tolerance. As I pointed out in one of the videos, my setups is probably not the "best", but it is attractive to me because it has a reasonable degree on consistency when volatility is relatively low and can reap rapid rewards if a vol pop occurs and premium bleeds out of the front leg. Downside risk (excluding a black swan event) is covered by the GTC OCO order to close the short leg, leaving the short delta long vega back leg in place. Upside risk is usually gradual, and the position can be closed or adjusted depending on DTE. That being said, I like his trade setup and have used it in the past.
  3. Thanks for the response
    So is your spy put diagonal trade also of limited use in this almost record low vol market ?
    Does it work in a more normal vol market ?
    What happens in a gap down day ? Not a black swan just a gap that goes past your OCO ? Does it still get filled ?
    Do you place a market order for the OCO ?
  4. 1. Since my SPY setup leans bearish and is long vega, a volatility pop in a low vol environment is ideal. So, I try to launch it on an up day in this environment, assuming that we will have at least a modest pullback during the life of the trade. As you know, the trade makes money either by front leg time decay OR a volatility spike OR a combination of both.
    2. If VIX gets above 20 or so I am cautious in placing this trade, although it will still work unless the market suddenly rallies. If so, I usually exit promptly.
    3. On a gap down day below the short leg (I haven't had one yet), I believe the order to close the front leg will still be executed at some point. It's hard to say how this would impact the overall trade, since it would stand to really profit if the market continued down with only the short delta long vega leg in place but would lose if the market snapped back immediately.
    4. The order to cover the short is to buy the ASK; the order to close the entire position at a profit is a limit order. Of course, each trader can choose how he/she would like to structure these orders.