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Good morning, tradeologists. Today, Avon Products, our Gamma Scalping trade stock, is up sharply. We are short 290 shares. That gives us a long Delta of 137. We’re still short 290 shares. In order to get Delta-neutral, we need to sell another 130 shares or so.
There are a couple of different ways you can look at this. You’re long Delta. If you want to, you could play it a little bit to the short side. You could say, “Well, if you think it’s going to go down, instead of selling 150 shares, and you wanted to be slightly short Delta, you could sell a little bit more than that. You could sell 170 shares.” If you wanted to be slightly long Delta, if you thought the stock was going to move up, you could sell 110 or 120 shares. It gives you a slightly long or short Delta.
Let’s take a quick look at the chart, here. First we’ll take a look at a longer-term two-year chart. It looks like we’re in this trading range here. It’s bumping up against the top end of that range. Once we get up to wherever this line is here, it looks like it’s kind of breaking through there. We may want to have a long position. We could sell some short here, just in case it does retrace. Or we could hold on and wait and see what happens.
The best choice is probably to keep an eye on… If you have a little bit of technical analysis, you could probably do a little bit better by trying to time your trades. We have the ultimate high up here, on a 20-day, 30-minute chart. The stock has moved up quite high, here. We want to do the price level right in there, which was the old high, before it started selling off again.
Once we get to that point, we don’t want to wait too long to adjust our Deltas, because we may miss an opportunity here. At this point, we are long 165 Deltas. I’m going to try to round out the number of shares that we have, because we’re currently short 290 shares. If I sell 110 shares here, that will round out our number.
I’m going to go ahead and send that in. We sold short 110 shares. That gets us almost to Delta-neutral. We’re a little bit long Delta, 50 shares long, just in case it continues to move back up a little bit. If it continues to move back up, we’ll have those long Deltas working in our favor. If it decides to sell off at this point, we’re 400 shares short. Either way, we’re okay. If this continues to move up, the idea is to continue to bring it back to a Delta-neutral position, so that we are able to take advantage of the price fluctuations, as the stock moves around.
Right now, we’re short at $37, and just a fraction of a cent. We can put a little note in there. Short at $37, 110 shares. Now, we are short about 400 shares. All we have to do is keep an eye on our Deltas. As it continues to move up, we can sell some more short, or we can let the Deltas ride, if we think there is a good opportunity here, to let the market go higher. That’s pretty much all we have to do.
Remember, we’re at about 400 now. Our full stock position would be at around $1000. Once we get to 1000 shares with a Delta-neutral position, then there’s really nothing else we can do at that point. We can’t make any more money, but we can’t lose any either. One of our call positions, or our put position, is going to be deep in the money. At that point, there’s not much that we can do. If the stock sells off, we’ll be short 1000 shares, and we’ll make quite a bit of money on a sell-off.
At this point, we’ll just keep an eye on our Delta. We want to be a little bit long Delta, unless we get a pretty good rally here. We’ll make some additional money on the long side, because of our long call. Otherwise, we’ll just keep an eye on it, and we’ll try to find some other opportunities, in which to do some Gamma Scalping on other issues.
I changed the Gamma worksheet just a little bit. As I find new stocks, I bring those down, and add them to the list here, as I go along. I’ve added a column here for “Days to expiration,” which you can add into your spreadsheet, if you like. I’ve also added a little column here for “Intra-day moves.” In other words, what’s the expected move for the stock intra-day?
The way we did that, if you recall, is that we went into our Analyze tab. We went over to “Probability Analysis,” and we took the range of the probability of touching, with the current ranges. Right now, for AVP, it does change on a daily basis. It’s 42.58, minus 32.22. That’s 10.36, divided by the number of days left in this expiration cycle, which is 18.
That gives us a 57.5-cent move a day. We’re still close to 58 cents. That’s all you have to do to determine when you should probably begin adjusting Deltas – it’s right around a 58-cent move in the stock.
Let’s go back here, to our main window. We’ll take a look at our risk profile. We’re long 99 Deltas. Once we get to a couple hundred Deltas, I want to go short again. As long as it stays around 100 Deltas – we could sell another 100 shares short here, but I want to keep an eye on the chart. If we can determine where the high is going to be, then we can actually…
When a stock moves up this sharply, the chances are high for falling just as sharply. We want to be able to capture those opportunities, if we can. This is a 5-minute chart. We can go to a 15-minute chart, to give us a better feel for the stock itself. We can see that this has gone past this here. We don’t want to miss any opportunities in the stock. It has run up extremely sharply here. It looks like we have earnings announcements coming up for the stock.
Let’s take a look and see if there’s any earning alerts for the company. I don’t see it. Let’s go down a little bit farther here. It looks like they have something coming up, though. We want to keep an eye on that. It doesn’t matter to us, actually. Large movement is good. If it’s too large, we want to make sure that we’re either long or short Deltas.
Here it is. Avon Products comes out July 30, before the market. That’s tomorrow. We have some earnings announcements coming out for Avon Products. They continue to roll up a little bit here. This might be some pre-market buying, if people are expecting the earnings to be good. We may want to be a little bit long Delta here. We’re already short 400 shares. With earnings coming out tomorrow, before the market – which means today is the last trading day for the earnings announcement of tomorrow morning.
Let’s keep an eye on this. I don’t mind being a little short stock, and a little long Delta, just in case we do get a good punch and pop up on the stock. That’s the way I’m going to play it today. If I do any more adjustments, I will definitely let you know, as usual. Stay tuned, and we’ll see what we have on the rest of the trading day.
In addition, I’m going to be looking for some additional Gamma Scalping candidates by filling in our spreadsheets.