Monday, August 31, 2015

Twitter Update #16 - Intraday Hedge

Aug 31

Analysis

Intraday, TWTR moved up to the short strike of the short call at 27.94. This is a move of just over a 1.00.

To hedge this gain, I am going to purchase a cheap butterfly to hedge the 1.00 move upwards. The butterfly will hedge the 1.00 move and be inexpensive to purchase.  I do not want to hedge the gain with an expensive put.

Trade

+2 Sep 4' 28 Put 0.89
-4 Sep 4' 27 Put 0.485
+2 Sep 4' 26 Put 0.27
Net debit 0.19

As volatility is still high, it makes sense to purchase a butterfly (negative vega) as the sale of the put spread makes it worthwhile to offset the debit put spread.

This is a 2pt wide butterfly that cost 0.19, within my guidelines of hedging gains for about 0.25 per 1pt move.

The expiration is short, ending this week, so it will open up quickly over the next few days.

The other butterfly hedge is still in place.

The net effect of this hedge is to lock in the gain. The position will not loose money now until below 27. If the stock can stay above 27 for this week, the net position will be down -939. Getting better.

I will next look to roll the short 28 call up and out in time later this week as I get closer to expiration.

-End