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BookingAlpha Option Trading Advisory

Wednesday, October 15, 2014

November 2014, SPX Put spread adjustment

Today I made an adjustment to the November SPX 1755/1760 Credit Put spread in the morning.

Here are the details:

Buy to Close 4 SPX November 1755 Put @25.45
Sell to Close 4 SPX November 1760 Put @26.50
Net Debit: 1.05 ($420 in 4 contracts per leg)

A credit of 0.30 ($120 in dollar terms) had been obtained from this spread when initially sold . So, overall it was a $300 loss, or around 2.5% portfolio draw-down.

I deployed a new Credit Put spread right after that:

Buy 5 SPX November 1595 Put @8.27
Sell 5 SPX November 1600 Put @8.57

Credit: 0.30 ($150 for 5 contracts per leg)
Max Risk: 4.70 ($2350)
Days to expiration: 36

This new Put spread brings in a $150 credit. If it turns out to be a winner, the final balance would be +$120 - $420 + $150 = -$150. Or approximately a 1.3% portfolio draw-down. Not bad at all. And although anything can happen, I think SPX is unlikely to go down to 1600 in the next 30 something days.

SPX started to rebound at the end of the day, with the kind of strength at the close that we hadn't seen in a week.

As usual, a chart for future reference:
(Click on image to enlarge)
Current positions after this trade:

October RUT 1230/1240 Bear Call Spread
$220 credit. Will expire this Friday for max profit.

November RUT 970/980 Credit Put Spread
$120 credit. 85% probability of success and 36 days to expiration. Now part of 970/980/1150/1160 Iron Condor. Will adjust if RUT goes down to 1030 this week.

November RUT 910/920 Credit Put Spread
This position was opened as part of the adjustment to the 1020/1030/1234/1240 October Iron Condor. $201 credit. 96% probability of success, 36 days to expiration. Opened for 0.67 credit. Closing it for 0.20 debit will totally cover the loss on the October Iron Condor. I want to close it for that price, but maybe end up happy with 0.30 debit or so.

November RUT 1150/1160 Credit Call spread
$200 credit. 36 days to expiration. Will help me mitigate the excessive downside exposure on the portfolio.

November SPX 1595/1600 Credit Put Spread
The trade described in this article. $150 credit. 96% probability of success, 36 days to expiration.

Not the end of the world. Losing months are inevitable with any strategy. Containing the damage is my number 1 priority at the moment. I'm still up about 14% for the year whereas the SPX is up only about 1% for the year after the close today. In fact it was negative for the year for a while during the session.

Take it easy, but take it anyways.

Check out 2014 Track Record

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1 comment:

  1. I like your adjustment. I think you have a great chance of letting it expire now. I normally wait until the end of the day to make adjustments. This was a fast moving market and it could have collapsed by the end of the day instead of turning around. I think if you had a 1775/1770 debit put spread protecting your 1760/1755 position, you would not have rushed into making the adjustment so soon. You would have time to decide your next move.

    I noticed you increased your contract by 1 to bring in more credit instead of selling something closer to the underlying. I do this sometimes too if I want to reduce the adjustment cost, make it breakeven, or bring in even more credit.

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