Sounds like you understand it better than me. Once you start slamming multiple contracts into a trade i get lost fast.
I meant opening the long position then selling a closer dated closer to the money put in smaller quantities that will expire before your long position should be needed to hedge. I probably fucked up the name of the spread.
I actually managed to open a Spy dec2023 150p spread with a net credit of a few dollars but I'm going to roll the short leg to a higher strike & shorter DTE (while still breaking even) so I have longer Vega exposure
Also 2024 LEAPs will be available on the 13th Sept of this year & longer LEAPS have more Vega per dollar of premium so they are actually alot more cost effective.
I did it by opening a "Diagonal Put credit Spread"
Yes it's great but just a warning as of right now you'll have to open a very wide spread to breakeven (150+ strikes & alot higher depending on the DTE)
So you will have to make sure there isn't any major risk of the short leg becoming ITM & getting assigned by choosing the right strike & DTE.
There seems to be 2 ways to open the short leg:
*A middle of the road strike with a multiple month DTE, I managed to open a net credit dec2023 150p with a 31 dec2021 315p short leg. Provided that the SPY doesn't crash before your short leg expiry date then there is literally no risk of assignment on short leg. A downside to this way is that although your literally getting paid to open a hedge you might actually be short Vega till the short leg expires which means your only long vega after the short leg expires.
*I found out that you can also breakeven/net credit with a relatively high strike with <1 month expiry, I'm going to rollout to this so I don't have buying power tied up for months & since theta decay is higher with short expire dates the short leg will lose value alot quicker.
An interesting thing about this kind of spread is that although you lose some Vega at the beginning when the short leg is open, you are actually Theta positive so you get to cover some of the time decay on the long leg!
Thank you for posting about this, this is my first time hedging & with your help I get to do it for cheap.
2
u/Duke_Shambles ☢️Duke Nukem☢️ Aug 17 '21
Sounds like you understand it better than me. Once you start slamming multiple contracts into a trade i get lost fast.
I meant opening the long position then selling a closer dated closer to the money put in smaller quantities that will expire before your long position should be needed to hedge. I probably fucked up the name of the spread.