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Monday, September 22, 2014

November 2014 RUT Credit Put Spread

As originally planned on the weekend portfolio analysis, I sold a RUT 970/980 Credit PUT spread in what I consider to be a short term oversold extreme. Here's the trade:

Buy 2 RUT November 970 Put @4.07
Sell 2 RUT November 980 Put @4.67

Credit Received: 0.60 ($120 for 2 contracts per leg)
Max Risk: 9.40 ($1880 for 2 contracts per leg)
Days to expiration: 59
Break even point at expiration: 979.40 (13.3% bellow current RUT price of 1129)

I feel comfortable with this trade. I think we're close to some sideways action or some sort of rebound. If I am mistaken, I still have plenty of room for error. The total fall from the most recent high (1183.85 on September 3) to my break even point of 979.40 represents a 17.27% correction for RUT before November expiration. That would be pretty remarkable.

RUT has fallen about 5% since since September 3 and here's the chart after today's close for future reference. Yellow horizontal lines, as usual, representing the spots where I have short options, a.k.a where I don't want the market to go:

(Click on image to enlarge)

With this trade, there are now two positions in the portfolio:

October RUT 1020/1030/1230/1240 Iron Condor ($332 credit expires in 24 days)
November RUT 970/980 Credit Put Spread ($120 credit expires in 59 days)

Check out 2014 Track Record

Related Articles:
Weekend Portfolio Analysis (October 4, 2014)
Weekend Portfolio Analysis (October 11, 2014)   
Added Credit Call spread as a hedge (October 14, 2014)

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1 comment:

  1. You were able to get further away from the market than me for the November RUT trade. If I had made a trade today, I would probably end up getting the 1000/990 credit put spread to take in more credit. Instead I have the 1020/1010 position which I added more today for 1.00 credit.

    My next move is to wait for RUT to fall to 1100. If it happens this month, I want to sell a December 950/940.

    Like you I feel we are closer to a short-term oversold condition. For it to fall another 10% in the next few weeks would require some major economic or world news. Anything can happen but this scenario is unlikely.

    BTW, your October RUT iron condor is perfectly delta neutral today.

    You can follow me on Twitter @lienjonathan where I tweet my 90% probability credit spread trades in real-time for free.