At Option Pit Option Mentoring, its not like we spend most of our times on swaps. However, I think it is important to look at and point out, because it further pushes that point that option mentoring students need to learn there are times where one sale is better than another. It goes toward my argument that the same trade every month regardless of conditions is not a way to make money.
The beauty of the straddle swap is reduced risk. While there is certainly some risk of divergence, I don't see this type of trade as any more risky than a butterfly. In fact in a trade like an OEX-SPX straddle swap it might be less risky than a butterfly.
After being in this trade for a week, the VIX and VXO have gotten closer to inline, although there is certainly room for the VIX to rally more or the OEX to fall.
The risk graphs are as follows:
Here is the OEX
Here is the SPX
Finally, to bring a point home, look at the beta weighted greeks of this trade, and then take a look at the P&L it produced in 5 days. That is a great trade given the risk.
I think this is 1200 bucks that we earned, good for us!. One could consider staying in this trade, there are good arguments. I would personally take the money and run though.
I hope everyone has a nice weekend. I will be giving 3 seminars 2 over the web and 1 live in person, next week. If you have any interest in these event please contact us info@optionpit.com
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