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BookingAlpha Option Trading Advisory

Wednesday, January 30, 2013

Managing RUT Options positions

Today I closed the RUT February 920/925 Bear Call spread that I originally opened on January 18 as part of a trade adjustment.

BOUGHT TO CLOSE 5 February 920 CALL @4.70
SOLD TO CLOSE     5 February 925 CALL @3.10

Debit of 1.60. The transaction had been entered for 0.80 credit, so this trade represents a 0.80 loss ($400 in 5 contracts per leg)

Right after that, I entered a new trade on RUT, also in February where I'm trying to recover the money lost with the Bear Call Spread. The new trade is an Iron Condor 855/860/935/940 as follows:

BUY 6 RUT February 855 PUT      @1.49
SELL 6 RUT February 860 PUT     @1.77
SELL 6 RUT February 935 CALL  @1.36
BUY 6 RUT February 940 CALL   @0.94

Credit: 0.70 (0.70 * 100 * 6 = $420)
Margin: $4.30 (4.30 * 100 * 6 = $2580)
Break-even points: 859.30 and 935.70 (RUT around 905 when I entered the trade)
Probability of success: 74.83% at market close.
Days to expiration: 16
Max return on margin: 16.28%
Commissions: $36.00 (Assuming a very unfavorable $1.50 per contract)

(Click on image to enlarge)

Then RUT started to slide down throughout the day, closing at 896.91. Here's the chart at market close for future reference:

(Click on image to enlarge)

I believe the first correction will be shallow, 3% - 5%. I believe the market will remain healthy for a while and RUT won't go down to 860 in two weeks. I also think that RUT at 935 in the next two weeks is very unlikely. So, overall, this new positions aims to recover the loss and move over. RUT has been killing me this year. Just want to close the page.

At this point I have 3 Iron Condors in play:

- 2 Iron Condors in the February expiration cycle (16 more days to go)
  SPX 1445/1450/1530/1535 total credit $600 and SPX priced at 1501.96 right now.
  RUT 855/860/935/940        total credit $420 and RUT priced at 896.91 right now.

- 1 Iron Condor in the March expiration cycle
  SPX 1355/1360/1560/1565 total credit $375

All these trades contain $1395 in credit. As of now all three of them look comfortable. If they end up being successful, the profits will greatly help the portfolio on its way to recovery this year.

I think I'm done with February trades by now. A very tough month where I haven't had the luxury of being lazy at all. I really miss being lazy as a trader. A couple positions a month without any drama. Looking forward to those days.

Check out 2013 Track Record

Related Articles:
Weekend Portfolio Analysis (02-02-2013)
Weekend Portfolio Analysis (02-09-2013) 

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