These drawdowns can get a bit depressing. Instead of just adding to my shares or ITM calls and subjecting myself to further big drawdowns, I have been adding some May 35/39 call spreads to my portfolio. This spread can be done for a debit of around 1.00. This should yield a 300% profit if pps is at 39. The May exp should also provide enough time, but not too much time. Since a pps of 40 could be another major resistance level, 39 should be a relatively easy target before May 2013.
Buy the May 32 calls for 3.25. Sell the Jan 35 calls for .67(diagonal calendar). Net debit 2.58. Roll up and out $1 in Feb, Mar, Apr and May. You'll end up $7 ITM and your net cost will actually be a credit.
Your diagonal call spread looks good. I may give it a try. I think the best way to play this is to just do a variety of different trades for different possible outcomes.
What do you think of these protective put spreads I have recommended to my friends, which could be done almost as a free trade. I am thinking in case we get a market correction, it may drift down to 28, worst case scenario low of 25.
long 1 Feb 30 / short 1 Feb 28 & short 1 Feb 27 for a debit of 0.05
Potential Outcome at exp. :
pps / profit
29 / + 1.00
28 / + 2.00
27 / + 2.00
26 / + 1.00
25 / breakeven
I also plan to do a second put spread:
long 1 Feb 29 / short 1 Feb 27 & short 1 Feb 26 for a debit of 0.07
The potential outcome of this second one would be the same but at one dollar lower strikes, breakeven at 24. (These trades are so cheap that I have rounded them to the nearest dollar).
Now in case it gets really bad, these put spreads could always be rolled down to lower strike spreads.