As we mentioned in the update to the FXI calendar, our intentions on calendar trades is often simply to buy time. Ideally we see the stock we’re targeting drift around, and maybe slowly approach our strike. But occasionally you get a quick move to your strike and still have some time left until the front month expires. In those cases you have a choice to make, whether to be patient or to roll when that happens to make sure your bearish or bullish calendar isn’t suddenly turned the other way on you when its deltas reverse on the other side of your short strike. The next calendar to look at after the FXI, is our SMH trade (the semi-conductor etf). Here was the original trade:
*SMH (54.10) Buy May/Aug 52 put calendar for 1.30
- Sell to open 1 May 52 put at .55
- Buy to open 1 Aug 52 put for 1.85
With SMH now 52.20 this calendar is worth about 1.50. We also want to roll it out to August to keep the short delta profile as we feel the technical and fundamental set-up means a retest of recent lows is possible over the Summer months:
UPDATE – Bought to close the SMH (52.20) May 52 puts for 1.00
- Sold to open the August 47 puts at 1.00
New Position – Long the SMH (52.20) August 52/47 put spread for 1.30 (currently worth 1.50)
Rationale – this roll doesn’t lock in any profits. What it does do is position for further weakness to the downside over the Summer months. The breakeven on the trade is now 50.70 with a potential profit of up to 3.70 at or below 47 on August expiration. This is re positioning the delta profile as the trade goes from a range trade targeting the 52 strike in the next few weeks to a short delta trade targeting a break below this level.