MNX double diagonal

A little history …

I put on the FEB/MAR double diagonal spread in MNX on Jan 7, 2009 for $0.00 credit.

It has the following short strikes in FEB:

121 put and 127.5 call

I have the following long strikes in MAR:

116 put and 132.5 call.

As you can see, there is $5.00 risk on the put side and $5.00 risk on the call side, so margin requirements for this trade is $500.

There are 22 days to FEB expiration so now is the time to start ‘thinking’ about rolling out my short strangle into MAR.

Currently, it’s marked at $4.75 credit. I have an offer of $5.01 in right now.

After the roll, the resulting spread will be a plain vanilla Iron Condor with a total risk of $5.00 (put side and call side evenly balanced).

Do you see where I’m going with this? If I get a $5.01 credit for $5.00 risk in MAR, I basically have on a risk-free trade with the potential to make $501.

According to my analysis, if volatility remains the same, a strangle roll on Feb 13 will be worth around $5.00 if MNX is trading between 119 and 131. Anything closer to the middle yields more.

MNX is a European-style cash-settled index meaning there is no choice for early exercise and there is no stock being traded. It is a mini version of NDX, which tracks the Nasdaq 100.

Time is on my side, and I need MNX to stay above 121 and below 127.5.


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