GOOG Earnings Play/Calendar trade (weeklies)

[Guest]

A couple of weeks ago (3/28/2013), I had opened a Calendar trade BTO GOOG May $800 Call and STO GOOG April $800 Call. $5.05 debit.

My intention was that Theta gains would outweigh Volatility losses. After a few days, it occurred to me that the Volatility losses would far outweigh the Theta gains. (Well, it appeared like that at the beginning - but it seems like most Theta gains happen at the end, which makes sense.)

So, on 4/2/13, I rolled down the May $800 call to April Week 4 $800 Call. $3.20 credit.

My intention was threefold: 1) to reduce possible loss by getting some money back, 2) to reduce the difference in Volatility between the two trades as they would both be close to the earnings date (4/18/2013 AC) and 3) to bet on "Theta spread" between the two positions being wide enough to make money on the trade.

I am planning to hold this position til Thursday morning, i.e. the morning of the earnings day.

The Theta difference for these calls is about $1.20, I believe, (-$2.08 v -$0.84), but I am a little confused on the Vega 0.32 v 0.53, [April v April Wk4, respectively].

What could make this trade a loss trade? Does the Vega, as listed, mean that the "advantage" (i.e. vega positive?) is to the April Call (with the lower vega)?

Many thanks for your help!

[Guest]

This is the concept we have used successfully with AMZN, GOOG and few other stocks.

 

I think your problem was entering too early. I tend to enter those trades 10-14 days before expiration, and you could get the same trade few days later for 4.30-4.40.

However, even with less than ideal entry, the trade is worth about 5.50 now. Not sure that rolling was a good idea.

I am considering holding this through earnings today... and the leg expiring this week expiring worthless and the one expiring next week having value approx $2, hopefully. Of course if earnings suck, they may both be $0 come Monday. Your thoughts?

[Guest]

I closed it at a loss... overall around $0.50 loss per contract/spread.

 

I intended to be directional, but I felt you were right that results could be horrible. My choices were 1/ lose it all if stock tanks, 2/ lose a significant portion if the results were decent and the stock moved towards $800 starting tomorrow and onto next week, and 3/ make some good money if the results were exceptional and the stock moved very close to $800 tomorrow - and then past $800 next week. I decided to be conservative and try not to find out.

 

I appreciate your timely and thoughtful feedback/responses.

[Guest]

Totally agree that lower allocation is best. The calls are now $8 each :-) /So, my thinking that it would be worth more than $2 wasn't a bad guess, granted a gamble. However, looking at the $830 calls, (my optimistic assumption of what the $800 calls would be worth if GOOG had tanked, I see that the loss would have been significant. A strangle (i.e. double calendar) held through expiration seems like an interesting idea if I don't pay too much for the d-c-spread.

 

Thanks again.