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Wednesday, December 9, 2015

January RUT Credit Put Spread

Today I entered the second position for the January 2016 expiration cycle:


Trade Details

Sell 20 RUT January 1025 Put @4.10
Buy 20 RUT January 1015 Put @3.50

Net Credit: 0.60  ($1,200)
Max Risk: 9.40   ($18,800)

Of course, under no circumstance will we allow this position to lose all that money. We would be defending way earlier. That's why I like to call this "the money we put to work". But, for sure, not the one we are willing to lose. In addition, we are also long March SPY Puts as anti-crash protection to hedge our downside risk.

Selling Credit Put spreads during oversold markets always feel terrible, but it is the best time to enter them. Selling Credit Put spreads when the markets are going up feels comfortable, but it is dangerous. You will never feel well selling Credit Put spreads when the media tells you the sky is falling. You will always tend to feel confident when selling Credit Call spreads during rallies. It's the natural bearishness impregnated in our brains by so many years of financial media only portraying gloominess and bad news. However, Call spreads will bite your ass way more frequently, as potential downside moves are always exaggerated and rallies underestimated, a reality that is reflected in the pricing of options

A RUT Chart at market close for future reference
(Click on image to enlarge)

Current Portfolio

January SPX 1865/1875/2200/2210 unbalanced Iron Condor
$2,300 credit. 5 weeks to expiration. Good looking position with SPX closing at 2047 today.

January RUT 1015/1025 Credit Put Spread
$1,200 credit. 5 weeks to expiration. The trade described in this article.

March SPY 161 Long Puts
Portfolio anti-crash protection.

Current exposure is 37%. The portfolio is 63% in cash.


Trade Update
December 24, 2015 - The RUT 1025/1015 Credit Put spread was closed for 0.15 debit. Profit is 0.45 in 15 days. On 20 contracts, that is $900


Check out 2016 Track Record

Related Articles:
Weekend Portfolio Analysis (December 19, 2015)


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