Yo Pit Crazies,
Sometimes you wake up trading and get a lucky surprise. I remember a long time ago getting legged out on a trade overnight with what seemed like no chance for a gain. That just meant I sold some puts but was unable to hedge.
The next day, the stock rallied on the open, and the trade ended up making me a couple thousand dollars. I sold the stock right away and decided not to press my luck.
Generally, when I own contracts the longer I hold a contract – and can pay for it – the luckier I can get. Short contracts seem the opposite; I want to close them or end up taking delivery if they get held too long.
3 Day JPM chart with 1 min candles
My Easy Button trade in JPMorganChase Corp (Ticker: JPM) left me with some long calls after I closed the short calls of the calendar.
JPM got lucky and ended up with First Republic Bank (Ticker: FRC) somehow. Shares went jumping.
I made a delta swap near the bottom of JPM last week.
Let’s see what I did.
I Replaced Short Calls With a Long Put
Last week, JPM slid lower with the market and never recovered as these bank woes continue to ebb and flow. I owned some 142 call calendars on the May19/May09 cycle. I closed the short calls in May05 for .20 and bought a JPM 132 put as a hedge to replace the short call deltas.
Short 4 JPM 142 C was 36 short deltas
Long 1 JPM 132 P was 36 short deltas
I figured if the Fed speech on Wednesday was ok, JPM would get back to 140 and I could make a bit. If the bank thing took a wrong turn, I would just sell the put as JPM was around 127 last month. By replacing the short call with a put I added long gamma, which gives a position more ability to make money if the stock moves.
Imagine my surprise when JPM decided to fix the issue and just take over FRC, so net my put cost I should get an 80% return on the trade. I sold the calls early on the open since I remembered it was better to be lucky than good.
Just for kicks, Janet Yellen is upping the ante on the spending battle by threatening default if the spending bill the administration sent to Congress does not get through. You would think with an inflationary environment a 1% increase in spending over the next couple of years would be sufficient.
June VIX vol should jump a bit.
To Your Trading Success,
AG