Hear Diagonal Call Spread – Trade Recap

Stock / Symbol: Turtle Beach / HEAR
Strategy: Diagonal Call Spread
Trade entry date / price: 11 Jan 2021 / $20.70
Trade exit date / price: 13 Jan 2021 / $22.42

Entry Reasoning: HEAR recently hit a new 52 week high and had pulled back to around its 50 day moving average, where it appeared to have found support.

HEAR price chart on Jan 11, 2021

On the premise that HEAR has long term support at the $17 level, we entered into a Diagonal Call Spread on HEAR, which is both long Delta and has positive Theta. The long leg utilized a July 2021 expiring 17 strike call, combined with a weekly 21 strike call, expiring in 4 days (Jan 15, 2021), for the short leg.

HEAR Diagonal Call Spread structure details:
Long 1 HEAR 16Jul21 17 call
Short 1 HEAR 15Jan21 21 call
for a net debit of $5.65 per contract.

Risk graph for diagonal call spread on HEAR

At the time of entry into the position, the Greeks were approximately: 26.9 Delta, 6.3 Theta, and 3.9 Vega. The structuring of the position provided for a window of profitability between HEAR trading down -2.5% and up 15.9% by the expiration of the short call. While the plan for the trade was to exit the trade 4 days later, when the short leg of the trade expired, we used a call on the long leg that didn't expire until July 2021, providing ample time to work the trade to profitability should HEAR have traded below our profit point.

Exit Reasoning: Two days later, with HEAR trading up and over the strike of our short leg of this Diagonal Call Spread, we exited the position. At the time of the position exit, the Greeks were: -10.5 Delta, 5.0 Theta, and 4.3 Vega. Aside from trading higher than the short strike price, a clear indicator that it's time to exit this trade is the shift from long Delta at 26.9 to short Delta at -10.5.

Trade Exit Order:
STC 1 HEAR 16Jul21 17 call
BTC 1 HEAR 15Jan21 21 call
For a net credit of $5.90 per contract .

HEAR diagonal call spread filled entry and exit orders

Analysis:

Max Risk: $565
Max Reward: $60 or 10.6% with HEAR at $21 on Jan 15th
Profit Range: HEAR between $20.20 and $24.00 on Jan 15th
Commission (round trip): $2.60
Downside Stop at: $15.95
Realized Profit / Loss: $25 or 4.4% (pre commission)

Positive Theta

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