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July 6th, 2008 at 11:06 am
DM- the main thing is that the position listed above is simply a placeholder for what I hope to get on Monday, but we’ll have to see what the market is doing. We could easily open significantly up or down, and those strikes would need to be adjusted. Obviously, all of the numbers above are from Thursday’s close.
Also, I don’t see the negative delta you mention. Using ToS I’m seeing .57 delta on the long SPY call, and -.53 delta on the short, for a net of .04. Truthfully, I don’t think it matters, because I am comfortable with anything in the .10 or less delta range as "neutral" enough. In fact, I thought the 125/126 spread was ever-so-slightly bullish, benefitting more from an up move in the market than a down.
Double-diag: I still need to do some backtesting and analysis to be comfortable with double diags, both because I’m a little sketchy about short puts as well as the fact that over the long term, markets tend to go up. Your Jul/Aug spread is probably an excellent one, but doesn’t fit my parameters for this portfolio. I’m interested in maximizing the cash flow differential between carrying cost of the long call, and premium income on the short call. Ultra-long LEAPs have the lowest per-expiration cost, thus the highest income potential.