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Let’s go to another stock. Let’s go to AutoDesk. It’s ADSK. We’ll take a look at this. First, we’re going to check the implied volatilities. We’ve got a 32.9 on the front month, and a 34.9 on the second month. That’s a negative skew of 2%. Now, 2% is not too bad. If we do 2% or under, that’s okay.
This may be a good candidate. Let’s take a quick look at our profit charts for ADSK. It looks like the stock had quite a downturn back here in March. It started coming back, here, and now it’s rallied up to 40, from a low of 30.
It’s possible that this has some potential to it. It may continue to rise higher, but there’s a 200-day moving average that generally either acts as support or resistance for most stocks. As you can see, it was support, when it was back here in mid-November. Now, it’s traded through that. That could be resistance up here.
Let’s take a look at their options. Now, we have a little bit better strike price differential, here. We’ve got 2.5 points between the strikes, that we can play with. Let’s go ahead and delete this Monster trade, here, and go to June 42.5. We’re going to go ahead and buy a double diagonal, double calendar. We’re going to change the puts. Let’s change the puts to the 40 puts, and then go ahead and “Analyze duplicate trade,” here.
That doesn’t look too bad, actually. Our actual live price is just below the center of this. Let’s see if we can’t play a little bit more with the strike prices. We’ll go to the next lower calls, which is the 40 calls. Let’s go down to the next lower puts, which is the 37.5 puts.
Now, we’re too far over to the right. We can’t seem to get this exactly in the center. Let’s go back to our “Trade” tab. We’re trading right at 40 now. Let’s see if we can’t get a calendar, at least at the 40 strike price.
That doesn’t look too bad at all. What we’ve got here is a calendar. The symbol is ADSK. We are looking at the June 40 calls. We are right clicking on those. We are going to buy a calendar, at the 40 strike price. We are analyzing it as a duplicate trade.
It doesn’t look too bad. Now, all you have to do, is determine exactly how many contracts you want to do. In addition, you want to take a look at your breakeven points, here. We want to get as much in the center as possible.
I believe, based on the current state of the market – I think we’re going to drop down a little bit, in the market. This stock may fall, or it may not. Our breakevens on this are these red lines here. It looks like we have a breakeven on the left side of 38, and we have a breakeven a little higher than 42, on the right.
If we go back to our profit charts again, 38 is down here, where prior support was for this group of trading days, in here. 42.25 on the up-side is our breakeven, and that is right around where the current resistance of this 200-day moving average is. This looks like a very good trade.
Now, all you have to determine is how many contracts you actually want to do. Let’s go back to the Analyze tab. I’m just going to bump this up a little bit, to 5 contracts. Our maximum profit on this is going to be approximately $400, at expiration of the June contracts.
We’re going to add this to our portfolio. It looks like we’ve got a nice range to move in. We’ve got a peak profit, here. We may have to adjust this later, which will give us an opportunity for additional profits. However, at this time, let’s put on this, get this started as a trade in our portfolio, and let’s start collecting some Theta, here.
Our debit is 65 cents, as you can see. That’s the most that we can lose in this trade. When you’re doing a calendar spread like this, whatever your debit is, is your maximum loss. You can’t lose any more than 65 cents in this trade.
The margin requirement for this trade, with 5 contracts, is only $325. It gives us an opportunity to really diversify our portfolio, a little bit. Let’s go back to the Analyze tab, keep this on, and go from “Single symbol” to “Portfolio, beta weighted.” Let’s see what it does to our portfolio.
Let’s take it off, and put it on. It doesn’t move our price, exactly, but it does give us a little additional profit potential. Let’s take a look at our green line, up here. This is $2,197, in our demo account, to $2,484. It gives us a little additional profit potential. It does diversify us a little bit.
We’re going to go ahead and put that trade on. We’re going to try at the mid-price, which is currently 70 cents. It just bumped up 5 cents on us, while I was talking. We want to try and pay as little as possible, for our debit spreads. I think this a good one to put on, so we’re going to go ahead and add this to our portfolio.
All we have to do is hit “Confirm and send,” and just take a look to make sure everything is right. We’re selling the June 40 calls, and we’re buying the July 08 calls, both at the $40 strike price, on a 5 by 5 calendar spread. There is our cost, as $350, plus $15 in commission. Our margin is approximately $350.
We’re just going to go ahead and hit that, and send it. It’s working, and we got filled immediately.
We are now in that trade. It looks like we’re going to be in good shape here. We’re going to follow that trade along with our portfolio, of course, and analyze it. Not only as part of our portfolio, but we’re going to manage that trade individually, if it happens to be working against us, and make adjustments as necessary.
Okay, guys. That’s it for today. Trade with confidence.