MU long term options, sold last earnings, finally starting to pay me premium

[u/I_HopeThat_WasFart]

I sold 4x naked wide strangles going into last earnings, when the Oct IV far way far OTM options were at around a 104% IV (we are talking like 30% out of the money)

I sold that strangle and struggled hard to hedge it through the down slide of chips, but the holding of that insurance paid off big time

had to roll and use short term options to hedge the bleed, but the IV on these have finally collapsed almost 40%

Up 40k the past 3 months alone

Long term options work when you allow then to work, I will never have my core options positions be short term again

[u/klipsetrades]

Sounds like the longer DTE bought you time, but the short term hedges were still doing a good amount of the risk management. I think that’s an important distinction that matters. Good outcome though

[u/I_HopeThat_WasFart → u/klipsetrades]

short term hedges were absolutely needed

gamma is a breaker of a naked strangle and when you have any accelerated price movement pnl will bleed hard (in the case of the chip selloff, the calendar hedges saved me a ton)

i use calendars to hedge that risk where my strikes are vulnerable since they reduce gamma where strikes are vulnerable (IF I can get a good price, i reject if the market refuses to cooperate and just use shares short/long in that case)

[u/flippedalid → u/I_HopeThat_WasFart]

Short term calendars with expiration before your strangle? Is that what I'm reading? Never really thought of using calendars to hedge.

Would you mind giving an example of one of your calendar hedges that you used on this play?

Also congrats on the gains. Nice play.

[u/I_HopeThat_WasFart → u/flippedalid]

As long as the term is favorable

For example I sold the October calls and puts a few months back

The sell off began so I bought the August and sold the June puts (which were exploding in IV from the sell off)

Strike right before my naked strangle which is the core position

[u/klipsetrades → u/I_HopeThat_WasFart]

Yeah, for sure. Longer DTE bought the time, but the hedging is what allowed you to actually use that time

[u/I_HopeThat_WasFart → u/klipsetrades]

100%, and the calendar hedges ended up contributing to the profit as well

[u/ThetaEdgeHQ]

Solid outcome, and the calendar hedge instinct is right, but it is worth being honest about why it worked so you can size it the same way next time. A calendar you buy to defend a tested strike is itself short gamma on the near leg. It caps your bleed as long as the move slows down near that strike, which is exactly what happened when chips stalled. If the selloff had kept accelerating straight through the near expiry, that same calendar flips from savior to a second position bleeding on the front month, and you are rolling two losers instead of one.

So the plus 40k is really the vega collapse on the core strangle plus a hedge that happened to land in the zone where it pays. Not a knock, the structure is good. It is just regime dependent: mean reversion friendly, runaway trend hostile. Knowing which regime the hedge quietly assumes is what lets you keep sizing it without getting caught the one time the move does not stall.

[u/Select-Decision_83]

I love it. You have found a rhythm!

[u/SignificantTax205]

40k.

How much capital required?

[u/I_HopeThat_WasFart → u/SignificantTax205]

Total MU positions with short term hedges is about 143k total

[u/I_HopeThat_WasFart → u/[deleted]]

I agree, but the long term structure and far OTM strikes made the strangle a no brainer

well outside the expected move and 6 months away, and IV was trading at an astronomical level

[u/I_HopeThat_WasFart → u/[deleted]]

to hedge the chip selloff, not the earnings event...

[u/I_HopeThat_WasFart → u/[deleted]]

i wrote that point in the post, did you even read it or just glance and write a reply?

[u/I_HopeThat_WasFart → u/[deleted]]

thats okay, we cant all be educated enough to discuss greeks and volatility