To illustrate what I mean by “trading against yourself” I will discuss the current Submarine Basket position that I have in $EBAY.
Here is the current trade:
- I am long $EBAY at $49 (exercised weekly Calls last week)
- I am short the December 6 Weekly 50 Calls (against stock)
- I am long the December 6 Weekly 52.5/51.5 Put Spread (was short the 49 Puts as the other part of the short strangle)
This notion of trading against myself is really a choice to take advantage of the pop in pre-market (upgrade) and the expected pullback. Why? One key reason: I am capped by the weekly short Calls so I am not really participating in the pop anyway (at least not beyond the $51.41 level – short Call strike plus Option cushion). So, what I can do is use some of the Option cushion I had to buy the put spread and play the pullback << trade against my long stock, trade against myself.