The Diagonal Call Calendar starring Sina

I received several questions regarding the $SINA Earnings trade that I initiated earlier today so I thought I would do a brief post on it. Here are the specifics:

  • I am long the March 07 Weekly 80 Calls
  • I am short the March 82.50 Calls
  • This trade takes margin until the March (monthly) piece is closed
  • This was done for a $.08 debit

To show how this trade can play out, let’s look at some scenarios:

1) The stock rockets to $100. Booyah! Now what? One of the simple things to do is to do nothing until expiration next week. You could also exercise the long weekly Calls now and ride the trade until March expiration.

2) The stock goes nowhere this week. Since the long options are for next week expiration you can just sit tight until next Friday to decide what the next step is

3) The stock goes down to $70. No harm no foul. You have time until next Friday to see if you can get any real value out of the long 80 Calls (not likely). You would then need to decide how you want to handle the short March 82.5 Calls

4) The stock goes up to $90 by next week expiration. Exit the trade for good value or you could create a March 80/82.5 CS & sell the long March 07 Weekly 80 Calls

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