Room for One Leg Lower
I moved the NVIDIA call fly out to February, 165, 190 and 215. Now the break-even range runs from about 160 to 220, so NVIDIA has time to go one leg lower and come back up. Even if it collapses to the lower zone, at some point it has to turn, and then you lose maybe 10 percent. You are not losing your house with this trade.
Delta Zero at the Start
In the beginning the fly is flat, nearly delta zero. If NVIDIA shoots up fast, we are not really making money. It is a slightly bullish trade, but it is also a theta trade: time has to play out.
The Volatility Bonus
If you put it on before earnings, implied volatility will go down a little after the report, and that works for the fly too. So this is a combination of an earnings trade, time and direction.
No Free Lunch
If you want more security to the downside, you have to make it a more boring, longer trade, and you have to wait longer. If you make it shorter, you get less security to the downside and you probably give up a little to the upside as well. That is always the trade-off.
80 Days Is the Sweet Spot
My sweet spot for this type of trade is 80 days. 60 days is a little short, 100 days is a little long. Somewhere between 70 and 90 days is where I want to be.
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