BY ANDREW GIOVINAZZI

August 16, 2023

Yo Pit Crazies,

At yesterday’s Open House, I posted this trade idea which I filled live:

BTO 1 CBOE Sep15/Sep01 150 call calendar for .80

CBOE 1 year chart

BTO 1 VIX Sep20 16 put and 20/30 call spread for 1.65

VIX 1 month chart

That’s a Call Calendar in Cboe Global Markets Inc (Ticker: CBOE), buying Sep15 150 calls and selling the Sep 01 150 calls. The second part of the trade is buying a VIX strangle, long the Sep20 20 calls, short the Sep20 30 calls, and long a Sep20 16 put.  

I have a debit balance in both trades; yet, there is positive time decay in the pair.  

Calendar Trades Provide Positive Theta

Because one option is short in the near term, it should decay faster in a well constructed calendar. I either close the call calendar (CC) at $150 CBOE stock price or let the short call go out worthless.

My end game here is to get a very cheap CBOE Sep15 150 call for under $1.00. I wouldn’t stop the call calendar value since the job to hedge it is the VIX strangle.

The VIX strangle is two parts – a call spread and a put spread. If the market falls apart into the new BRICS currency or there’s a spike in Treasury Yields, I should be able to sell the VIX Sep 20 20/30 call spreads for $3.00 or better.

Since I’m into the two-way trade for 2.45, that should leave me with the calendar and a VIX put for a credit. If the market reverses course and vol collapses, the VIX puts should be worth $2.50 or better.

I will report on how the trade progresses.

The Rundown

Nitro Trader

Delta Airlines Corp (Ticker: DAL) Sep15 46 puts closed for a 90% gain

Power Income Trader

Fortinet Inc (Ticker: FTNT) Oct20/Aug18 65/62 call diagonal closed for a 63% gain

To Your Trading Success,

AG