My short SPY position had been in the red for most of the past two weeks when I entered this trade to hedge my overall long positions. Because of the drop in SPY today, I was able to make a small profit (~$30) and a window of opportunity to roll my position higher and longer in duration to collect more premium and adjust my overall delta position accordingly.
The market closed at an all time high again! It seems this bull market has legs as investors continued to buy the dips. Along with the market, my personal portfolio hits a new all time high today. As such, I'm continuing to stay on the side of caution in my trading strategy. My trading strategy has been to continue taking profit often, continue to trade relatively small, continue to have a slight short delta as beta weighted against the SPY and continue to buy on the dips and sell into rallies and contraction in volatility and time.
As an option trader, I embrace volatility and use the elevated levels as an indication the options have reached its highest premium. With this in mind, I want to illustrate an example trade on BMY (Bristol Myers Squibb) that I closed today for over $400 in profit. BMY came into the radar on my high IV (Implied Volatility) scan report around Valentine's Day, which I entered the trade with a straddle at $55, slightly delta long as it was trading at around $54 at the time. With this trade, I'm looking for the eventual IV contraction, time decay, and/or the underlying to move upward due to my long delta. Everything worked in my favor but the biggest driver in my profit is the contraction of the IV rank from 100% to less than 30% as illustrated in the plots below. Have a good weekend!