LTOptions at a 33% discount during the Year End Holidays.
Tell me More

BookingAlpha Option Trading Advisory

Wednesday, October 9, 2013

October SPX Credit Put Spread adjustment plus a new RUT Credit Put Spread

Today I had to make an adjustment in the SPX 1615/1620/1780/1785 portfolio. Basically I rolled down the Put side to 1600/1595.

Sold to Close 4 SPX October 1615 Put @9.40
Bought to Close 4 SPX October 1615 Put @10.40
Sold to Open 4 SPX October 1600 Put @6.90
Bought to Open 4 SPX October 1595 Put @6.30
Net Debit: 0.40

In particular the 1615/1620 Put spread had originally been entered for 0.30 credit and was now closed for 1.00 debit. That's a 0.70 loss ($280 in 4 contracts per leg).

The new SPX Iron Condor is now 1595/1600/1780/1785. With SPX at 1656, that is more than 4% away to the downside, which I believe won't be reached in the next 8 days. SPX is now looking very oversold short term (Stochastics 12, McClellan -170, and only 28% of stocks are above their 20 Simple day moving average). So, I think the downside is limited. Right after my adjustment, the market started to rebound. Who knows? Maybe today's low is the lowest we will see for the time being and a rebound already started. I think short term (1 week), we're due for a rebound. Obviously, medium term there is plenty of room to fall with 67% of stocks above their 200 SMA, still a large number).

Now, why did I adjust you may ask?
Well, price was certainly far from my 1620 short put. But here's the thing.  You can choose to adjust earlier (like I did) and give up some profits plus increase your commissions costs. The benefit is that you avoid steep draw-downs in your equity by not adjusting at the very last moment. Essentially I want to avoid drawdowns like the ones suffered in January and February. Alternatively, you can adjust at a point that is closer to your short strikes. By doing that you give your position more time to work in your favor, and you can potentially achieve better returns, but at the cost of greater draw downs when you adjust a position that has already lost more money. That's essentially how I used to do it before January-February 2013. I think over time I've realized I am happier with smaller returns but a smoother equity curve that avoids drawdowns at all cost.

I also entered a RUT Bull Put spread, based on the same premise that the market looks oversold short term and due for a rebound.

Here are the details:
Bought to Open 4 SPX October 970 Put @2.40
Sold to Open 4 SPX October 975 Put @2.70
Credit 0.30 ($120 for 4 contracts)

With these two transactions, October positions look as follows:
SPX 1595/1600/1780/1785 Iron Condor. $520 credit and 85% probability of success.
RUT 970/975/1120/1125 Iron Condor. $320 credit and 92% probability of success.

I feel more comfortable with these two positions, 8 days to expiration, and there is still a good chance to finish October with a positive balance.

Finally, as usual,  a chart after market close for future reference:
(Click on image to enlarge)

Check out 2013 Track Record

Related Articles:
Weekend Portfolio Analysis (October 12, 2013)
SPX 1595/1600 and RUT 970/975 expired worthless for full profits

Go to the bottom of this page in order to see the Legal Stuff


  1. Your positions look very good. A bit more conservative than mine for sure. But I totally understand why you would want to adjust early and often rather than wait later and risk a big drawdown. We are still in a bull market. Aside from the possibility of a default by the US, I don't see anything in the next 3 months to stop this rally. Once we get pass this political deadlock, it might be smooth sailing for the rest of the year minus some hiccups along the way and a possibly another 4-5% correction in November or December. The market has no memory while people do. We extrapolate from the past which colors our future. During the first 8 months of the year, I was carrying around the mindset of summer of 2011 when we had a bear market. I now realized that each market is different than that price action is more important than opinions. It has been a great lesson for me.

  2. Certainly. A market that will go up no mater what, unlike that of 2011. We need to learm to realize those things and trade accordingly. I think hard/static rules are not possible, as much as I would like them. By the way, futures are up huge. Looks like the rebound started and the market had indeed reached an extreme short term oversold level. Thanks for dropping by Jonathan