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BookingAlpha Option Trading Advisory

Tuesday, October 23, 2012

November RUT Bull Put Spread

As per my tweet today at 10:53 am.

SELL 3 RUT November 750 Put (@3.80)
BUY 3 RUT November 740 Put (@2.95)

Credit: $0.85 (0.85 * 100 * 3 = $255)
Margin: $9.15 (9.15 * 100 * 3 = $2745)

Break-even point: 749.15 (Around 808 when I opened the trade)
Probability of success: 92.87%
Days to expiration:23
Max return on margin: 9.29%
Commissions: $9.00 (Assuming a very unfavorable $1.50 per contract)

The markets were down in the morning as you all know. It looked fairly oversold to me with McClellan below -170, and only 24% of stocks above their 20 SMA. As outlined during the Weekend Analysis, I believe there won't be any panic selling. So I'm entering this bullish play when the crowd is scared.

Below is the chart of RUT at the market close for future reference. Unfortunately I was pretty busy at work so, I didn't have much time to take screen shots and blog live. I only tweeted the trade in real time.

(Click on image to enlarge)

The reason why I entered this position for such a small credit is because given that I already have exposure in the SPY 137/135 Spread, I needed to enter this one farther away, so in case the market keeps tanking both positions are not affected to the point of adjustment at the same time. The breakeven of this position 749.15 is proximately equivalent to SPY 131.50 at this moment, so chances of both positions being affected at the same time are very low.

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Related Articles
Weekend Portfolio Analysis (10-28-2012)
Weekend Portfolio Analysis (11-04-2012)
Weekend Portfolio Analysis (11-11-2012)
Portfolio Performance Analysis 

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