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Tuesday, September 29, 2015

October 2015, RUT Credit Put spread

Today I added a new position to the October expiration cycle during the afternoon session as the market reached a short term pessimistic extreme.

Trade Details:
Sell 2 RUT October 980 Put @3.32
Buy 2 RUT October 970 Put @2.72

Net Credit: 0.60 ($120 in 2 contracts per leg)
Expiration: 17 days
Break-even point: 979.40 (9.6% below current price)
Current RUT Price: 1083.91

It's always hard to trade against the crowd. Against the fear, or against the extreme greed. Going ahead and doing what the majority thinks is wrong is always uncomfortable no matter how long you do it. But it is how money is made in the markets. It's hard to trade a Credit Spread when the entire world thinks the markets are going to hit support at zero the next month. This is where emotions need to be left behind, and numbers, history and probabilities analyzed pragmatically, without passion.

A picture of RUT at market close for future reference:
(Click on image to enlarge)
We'll see if that 1080 level holds. It did today but man are these markets looking weak. In any case, it is a system's signal and as such I take it. No place for my flawed subjectivity judging weakness or strength. Next mayor support is 1040, which is still nicely above my strike price.

My position is that little yellow horizontal line on the chart. Look at what the market has to do to get there in less than 16 days. That move would be pretty drastic.

Current positions in the Portfolio:

October SPX 1700/1710/2195/2200 unbalanced Iron Condor
$280 credit, 17 days to expiration, 95% probability of success. Still looking very good in spite of recent market one sided price action.

October RUT 980/970 Credit Put Spread
The trade discussed in this article. $120 credit and 17 days ahead. I think there are good chances here

November SPX 1630/1640/2100/2110 Iron Condor
$350 credit, 52 to expiration, 78% probability of success. Not bad, still plenty of room to both sides.

If the two October positions are successful I will end up with a positive October expiration. Totally compensating for the loss of my first October position back in August. 

What's next?
Well, with three positions already on now it is time to take it easy and rest. I would only trade to sell a Credit Call spread if the market rallies hard from now on. I'm not a fan of having 4 or 5 positions, well, five at the same time I have never done it as I play large position sizes relative to my total capital. 4 positions on at the same time is a rare exception. So, time to let the "good work" play out now, or what I think is a good work. If these 3 positions don't work as expected it will probably be due to a market crash because the Call spreads are way too far. In that case my next trades would be defensive adjustments.

Check out 2015 Track Record

Related Articles:
Weekend Portfolio Analysis (October 3, 2015)
Weekend Portfolio Analysis (October 11, 2015)

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