We have two mildly bullish range trades on in GOOGL right now. I wanted to check in on these as they’re interesting from a decay perspective. One was an in the money butterfly the other a calendar. First the butterfly, from May 7th:
Trade: GOOGL ($544.25) Buy to June 540/565/590 call butterfly for $6
-Buy 1 June 540 call for 17.20
-Sell 2 June 565 calls at 6.60 each or 13.20 total
-Bought 1 June 590 call for 2.00
This was right on the edge of being intrinsically where the stock was trading at the time of entry. And now with the stock at 546 it is. What that means is that theta isn’t really a large factor yet and any gains so far have basically been on its small delta and volatility coming in. With the stock almost 2 dollars higher the trade is worth about $7 here. It’s about +15 deltas here and that will begin to increase over the next few weeks. (if this was the Friday of June expiration it would be almost +100 deltas right now). The best thing for this trade is for it to crawl higher towards that mid strike of $565. Since it’s only 15 deltas we don’t need to be too defensive on small selloffs in the stock. But a break below $540 would be of some concern as it would then be completely out of the money.
The other trade was from May 8th:
Trade: GOOGL ($550) Buy May 29th weekly / July 570 call calendar for $9
-Sell to open 1 May 29th weekly 570 call at $2
-Buy to open 1 July 570 call for $11
This trade is actually down a little bit on small deltas and vol coming in. With the stock at 546 this is worth about 7.50. Most of that decline can be attributed to being long july vol. The thing to watch on this trade is those May 29ths. If the stock was to decline from here or go sideways we need to be careful that this calendar may be too far out of the money and the premium sold on the front month isn’t enough to make up for that in the back month. If the calendar was at the money this wouldn’t be the case, but out of the money it can happen. In fact, right now the net theta of this trade is exactly even. But once the May 29ths are only worth 30c or so that becomes impossible and we’ll need to roll. Ideally the stock would be a little higher than it is now and we could sell something meaty on the 570 line, but if that doesn’t happen we may need to consider a lower strike, and even possibly rolling both strikes lower.