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Monday, July 27, 2015

August 2015, second SPX Credit Put spread

Well, a little earlier than anticipated in the weekend analysis, today I sold a Credit Put spread on the SPX index. The reason being: all three indicators that I follow quickly reached extreme pessimism levels at the same time.

Trade Details:
Buy 4 August SPX 1925 Put @4.55
Sell 4 August SPX 1930 Put @4.85

Credit: 0.30 ($120)
Max Risk: 4.70 ($1880)
Days to expiration: 25

The SPX chart at market close today, July 27, 2015 for future reference.
(Click on image to enlarge)

Will the market keep going down from here?
Who the hell knows?!?!
One thing I can tell you,.....if I knew with 100% accuracy where the market was going to go next, this website wouldn't exist. So, I appreciate the fact that I don't know.

I think I've given myself some nice room for error. I expect support around 2040 to be strong. If that fails, then 1980 should be another wall of contention.

Current Positions in the Portfolio

August RUT 1150/1160/1350/1360 unbalanced Iron Condor
$254 credit, 81% probability of success. The Put side may need adjustments if RUT falls to around 1205 this week which is pretty close so I have to be paying attention.

September RUT 1120/1130/1330/1340 unbalanced Iron Condor
$235 credit and 74% probability of success. The Call side is comfortable. The Put side may need adjustment if RUT hits 1195 or so.

Here's the situation in RUT. We may see some nice support around 1205-1210, which would be ideal for my positions:
(Click on image to enlarge)
If that support level fails, then I will have to play the defense game for the first time this year.

The last position in the portfolio is this one entered today:

August SPX 1925/1930 Credit Put spread
$120 credit with 25 days to expiration. I'm back to having 3 Put spreads on, which with 25 days to expiration means, it is not my ideal comfort zone. I will close one RUT Put spread early if I get a chance to do it for a slightly positive result or even break even. This will alleviate the risk.

Stay tuned. The next few days in the markets could bring some more excitement and need for action.

Check out 2015 Track record

Related Articles:
Weekend Portfolio Analysis (August 2, 2015)
Weekend Portfolio Analysis (August 9, 2015)
Weekend Portfolio Analysis (August 16, 2015) 

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  1. "I'm back to having 3 Put spreads on, which with 25 days to expiration means, it is not my ideal comfort zone."

    Can you please elaborate on what you mean?

    Today I sold SPX Oct 30th 1800/1790 cps for $0.75 credit and RUT Oct 16th 1060/1050 cps for $0.85 credit. I feel we are now oversold on both indexes. That does not mean it can't go any lower. If we go lower, I will see if I can add to any of my existing credit put spread positions on the way down.

    If SPX falls to 1980ish this week or next, I will look to sell SPX Oct 30th 1700/1690 cps and Dec 30th 1600/1575 cps. If RUT falls to 1160ish this week or next, I will sell RUT Dec 18th 950/940 cps.

    1. Well, it's simple logic and disaster prevention.
      Even if all positions have been played at different times, different strike prices guaranteeing some basic diversification, they are all correlated. If one single spread gone bad is a nuisance, three of them at the same time would be a real pain, even with risk properly managed. For example what if the market falls 15% over the next two weeks? Yes, very unlikely based upon history, but anything is possible.

      So, I just open the third position because taking risk is the only way to obtain returns, but I do it aware of the directional risk taken and being willing to make early exits unlike my usual "laid back style" of letting things expire, which I use when I only have one or two positions on.


    2. I must also point out that if we were only a week or so from expiration, then I wouldn't feel so much pressure because it is like "the market has less time (opportunity) to do something catastrophic against me". So in those situations I'm willing to roll the dice just a little bit more to squeeze that little more credit out of the existing positions.


  2. Isn't it more pressure if it is 1 week away from expiration? When you are close to expiration, the high gamma will cause your option price to move a lot with every point change in the underlying.

    One more question, do you use Delta in selection of your short strike?

    1. "Isn't it more pressure if it is 1 week away from expiration? "
      Not really. It all depends on how far your strike prices are from current price action. Against most people "common wisdom" most of my positions are left to expire worthless. It really depends on how far my strike prices are and how likely they are to be threatened. It is better for the underlying price to be let's say 50 points away from you, with only one week left than the same situation with 3 or 4 weeks left. The probabilities of success are way smaller in the second case.

      "One more question, do you use Delta in selection of your short strike?"
      I don't generally look at deltas, or any of the greeks. I do look at probability of being in the money, which in the end is similar to deltas but not exactly the same.

      Thanks for the questions Tony,