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Thursday, December 12, 2013

January 2014, RUT Bull Put Spread

After 20 days without entering new trades, today I went into the fire again.

Details bellow:
Sell 4 RUT January 995 Put @3.90
Buy 4 RUT January 990 Put @3.60
Net Credit: 0.30 ($120 for 4 contracts per leg)
Max Risk: 4.70 ($1880 for 4 contracts per leg)
Days to expiration: 35

The uptrend channel in RUT is still in play and current price is just around the lower end of the channel.
This is a chart after market close for future reference.
(Click on image to enlarge)
I entered the trade at a moment when only 29% of the stocks in the NYSE were above their 20 SMA, the McClellan Oscillator was -180 and Stochastics very low at 9. All the stars aligned signaling a short term oversold condition. As always, we can fall a little bit more. Catching the absolute bottom is impossible, but with the short Put at 995 there is enough room for error. RUT closed the day at 1103, which is almost 10% above my short Put strike. I don't think that move will take place in the next 35 days. Only time will tell.

With this trade, there is an unusual portion of the portfolio at risk, around 70% of the capital. But I'm fine, first because not all the risk is in one side of the market, second because two Put spreads and one Call spread will expire next week and be forever gone. These are all the positions as of right now:

SPX 1675/1680/1850/1855 Iron Condor $425 credit.
SPX 1600/1605 Bull Put Spread $80 credit 

SPX 1645/1650/1880/1885 Iron Condor $320 credit
RUT 990/995 Bull Put Spread $120 credit

No position is currently under threat and next week will be a successful expiration week for The Lazy Trader to finalize a very tough year in positive territory.

Related Articles
Weekend Portfolio Analysis (December 21, 2013)
Weekend Portfolio Analysis (December 28, 2013)
Weekend Portfolio Analysis (January 4, 2014)
Weekend Portfolio Analysis (January 11, 2014)
RUT 990/995 Credit Put spread expires worthless for full profit 

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  1. Very nice trade Henrick. I think the chances of success looks pretty good unless we have a major event that causes a market correction. As usual, your timing should be near perfect as I don't see the market dropping more than 2% more for the rest of the month. Come January, it will be a different story.

  2. Thanks Jonathan. Yes, with puts you can go so far out, it is refreshing. Hopefully I can achieve much better results in 2014.