RUT Calendar Update 5-19

Another day of doing nothing for our calendar.  As I've mentioned prior, the one area that can hurt us on calendar trades (aside from radical price movements of course) is volatility.  When Implied Volatility (IV) drops our calendar loses value.  For many days now we have been treading water, because time decay is working in our favor, but being counter-acted by hefty drops in IV.

You'll notice on the price line above that Vega is 72.  That simply means that if IV drops ONE point, we lose $72.  It has dropped nearly 4 points since we entered, and today it dropped another .5 (half point), so there you go.  With dropping IV  and a calming market, one might ask why I leave the calendar on.  Hmmm... good question... I am asking myself that question, but I think I have a good answer.

I have some regular campaigns that I run each and every month.  I don't run calendars in a vacuum, but rather in conjunction with Condors or Butterflies.  These short Vega trades (the MAKE money when IV drops) balance out the IV risk that I have in the calendar.   Just for grins, I took a snapshot of my total RUT position for the month.  There are few things of note here:

• Vega is -21, rather than +72.  Not zero, but closer.  In light of the falling volatility I like this position being slightly negative.
• Delta is .89... pretty close to ZERO.  In fact, yesterday was SO neutral that for a moment I thought something was wrong.
• Overall, the position is balanced and very profitable.  I am actually starting to exit already.  The Condor components are now half-way removed (we started with 20 spreads), and close to a complete exit. 

I don't know how the overall thing will pan out, but it's all part of a package.  I am much more concerned with how the overall package turns out than I am with just the Calendar portion of it.  If things stay settled I will probably exit the Condor by the end of the week or early next week.  I'll make a decision at that point about whether to exit the calendar.  At this point, with only a $30 deficit and well centered, I like the IV protection it offers and will hang around for a while.

Good Trading...