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Thursday, March 27, 2014

May 2014, RUT Credit Put Spread

Here's today's trade:
Buy 2 RUT May 1000 Put @4.60
Sell 2 RUT May 1010 Put @5.20

Credit: 0.60 ($120 for 2 contracts per leg)
Margin: 9.40 ($1880 for two contracts per leg)
Days to expiration: 49

RUT closed today at 1151. The 1010 short strike of this credit spread is over 12% below the current price. I feel that's pretty safe.

The market is close to a short term oversold extreme.Notice how I say short term. Of course the market is not oversold in respect with valuations. With more than 60% of securities trading above their 200 Day Moving Average we cannot say it is an undervalued market. But I don't care about that number (two hundred days MA). I care about what is going to happen in the next 4 to 5 weeks. In the short term, I feel we are close to a rebound when only 29% of the stocks are trading above their 20 Day Moving Average. Even if I'm wrong, I have 12% as cushion for error. I like this position.

Here's a chart of RUT at market close for future reference
(Click on image to enlarge)

With this trade, these are the positions in the portfolio:
April RUT 1080/1090/1280/1290 Iron Condor $480 credit, 83% probability of success with 21 days to expiration

May SPX 1695/1700/1960/1965 Iron Condor $320 credit, 80% probability of success with 49 days to expiration

May RUT 1000/1010 Credit Put Spread $120 credit, 94% probability of success with 49 days to expiration

I would like to open another trade in the April expiration cycle. Let's see if the market keeps falling in the next few days to add an April Credit Put spread .

Check out 2014 Track Record

Related Articles:
Weekend Portfolio Analysis (April 5, 2014)
Weekend Portfolio Analysis (April 11, 2014)
Weekend Portfolio Analysis (April 18, 2014)
Weekend Portfolio Analysis (April 26, 2014)
Weekend Portfolio Analysis (May 3, 2014) 
Weekend Portfolio Analysis (May 10, 2014

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  1. Very nice trade this morning. RUT should have been very easy to fill. I don't know what is up with SPX. Even when your price is the mid, it still will not fill. Like I said, I place most of my trades during the last half hour.

    You have a typo on the title - May 2014, RUT Credit Pur Spread

    I think you positions are safe for now.

  2. Thanks for the correction. I fixed the typo.

    I agree that getting filled on RUT is waaaaaaaay easier than SPX. I still don't understand why people say it is liquid. Or how Karen says she has no problemas with liquidity. Maybe because she only trades one option and not a spread? I don't know.


  3. Yeah. I think just selling puts would make it fill easier.