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Thursday, October 30, 2014

Second November $RUT Credit Call spread adjustment

Well, another tough day for my November positions. I had to close the RUT 1180/1185 Credit Call spread as it reached the 30% probability of being in the money level.

Trade details:

Buy to close 4 RUT November 1180 Call @9.42
Sell to close 4 RUT November 1185 Call @7.62
Debit: 1.80 ($720 for 4 contracts per leg)

I originally received 0.55 credit for this position ($220 in 4 contracts). Paying $720 to close it represents a $500 loss.

This is the third credit spread adjustment made on the November expiration cycle, making it the worst in my trading history. Not in dollar terms, but worst in number of adjustments.

Right after that I tried to obtain 1.00 credit selling the 1210/1220 RUT Credit Call spread but was not getting filled. After a few minutes I decided to close the order and try my luck with SPX 2050/2060. So, there you have it, an adjustment made with a different symbol. Not my preference, but I definitely wanted some fresh credit farther out of the money.

Sell 2 SPX November 2050 Call @2.90
Buy 2 SPX November 2060 Call @1.85
Credit: 1.05 ($210 for 2 contracts per leg)

I also closed the IWM December 118 Long Call for profit. This is not the original plan I had with it, which you can see here. But I just think with the recent rally, it is unlikely to keep going straight up for two more months. I think some sort of pull back will have to happen and then I may re-enter a cheap out of the money Call again with the same plan.

Anyways, I bought it at 1.11 on September 23, sold it today for 1.60.

Chart of SPX at market close for future reference:
(Click on image to enlarge)

Current positions after this trade:

November RUT 970/980 Credit Put Spread
$120 credit. 21 days to expiration. Not a problem.

November SPX 1685/1690 Credit Put Spread
$120 credit. 21 days to expiration. Not a problem.

November SPX 2050/2060 Credit Call spread
$210 credit. 21 days to expiration. The new position discussed on this article.

December SPX 1750/1760/2070/2080 Iron Condor
$340 credit. 49 days to expiration. Still out of trouble.

The good thing about a market going to the moon is that my long term dividend oriented investment portfolio is looking better than ever. Life's never 100% negative.

Check out 2014 Track Record


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9 comments:

  1. Based on my extensive backtesting of SPX/RUT, I am of the opinion that bear call spreads will always be more problematic than bull put spreads. This is why I only short with small positions and use it mainly as a hedge for my long positions. It should never be more than 15% of my portfolio.

    I agreed that the upside is a bit limited now that we rally back to 2000 on SPX. With that said, I think the momentum is still up. My short position that needs my attention is the Nov SPX 2025/2030. If SPX breaks through 2000 tomorrow and stays there all day, during the final hour of trading, I will close the 2025/2030 for 2.00 debit. I will adjust by selling a Dec5 SPX iron condor 1900/1895 & 2100/2105 for about 1.40. I originally took in .40 credit for the 2025/2030. So I will show a .20 loss assuming my Dec5 SPX iron condor expires for max profits. A .20 loss to protect my mostly long portfolio is worth it.

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

    ReplyDelete
    Replies
    1. Based on your backtesting and on my reality the last three years. I'll write an article with the results for each strategy, CCS, CPS, Iron Condors. Analyzing how each one performs individually. Calls are the worst. Time to trade accordingly. Iron Condors will be unbalanced, half the Calls. CCS also will be smaller, half position size.

      Thanks for dropping by
      LT

      Delete
    2. Agreed. Markets can go down faster than up but can go up longer than down. I look forward to your article.

      Delete
  2. LT - Which Nov spreads are you selling? Is it 22nd or 28th? Or by default you mean expiry on 3rd Friday (which would be 22nd Nov)?

    ReplyDelete
    Replies
    1. Always the monthlies Jj. So Nov 21 in this case (European style expires on Friday)
      LT

      Delete
    2. Thanks!! Is there any real difference, liquid, bid/ask spread, etc., between monthlies/weeklies (other than expiry date)?

      Delete
    3. I dont think there is.
      Maybe less liquidity. Monthlies are still the most active ones. But in any case volume/Open interest can answer that question.
      LT

      Delete
  3. Hi thank you for your blogging, I keep learning a lot. You asked the other day how other spread sellers were doing this month, I can tell you on my side has been dreadfull.

    After taking too many losses wiping out all my ytd profits I keep being thread, now with a CS SPX 2030/40 Nov. Was thinking on adjust to CS 2080/90 and also with PS, what would you recmend? thanks

    ReplyDelete
  4. Hi Hector,

    It's hard for me to recommend anything and then feel guilty about your situation. You are trading the 2030/2040. I'm on the 2050/2060. If I get threatened I will adjust further up. If I was playing 2030/2040 I would adjust as well. You may enter some Puts into the mix, but I would trade them smaller than my usual size.

    Good luck
    LT

    ReplyDelete