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Wednesday, November 2, 2016

November RUT Credit Put Spread

Today I initiated a November position in RUT:


Trade details:

SELL 10 November RUT 1080 Put @3.55
BUY  10 November RUT 1070 Put @2.90

Total  Credit received: $650
Days to expiration: 16


A RUT chart for future reference and self-study:
(Click on image to enlarge)

Stochastics and McClellan Oscillator both oversold. Only 26% of stocks were above their 20 Day Moving Average at the time of the trade.

I went only with half my typical position size. Simply because there is another SPX Credit Put spread in the portfolio (at 8 deltas as of this writing) and I don't want to concentrate too much risk in a similar neighborhood.

Playing this RUT spread smaller than usual allows me to sleep well even if it losses.
According to my estimates, RUT would need to lose about 5% of its price from current levels in order for me to need to defend this NOV 1080/1070 Credit Put spread. At that point, I would be closing it for about 2.20 debit. Given that a 0.65 credit was received, that would be a net 1.55 loss. In ten spreads that represents $1,550 in dollar terms. Then, I would be deploying a new spread using December options and strike prices in the low to mid 900's. Because I would be allocating my typical position size in this hypothetical adjustment, I should be able to collect a credit of $1,200 - $1,300 in dollar terms, resulting in a very high probability position that would almost totally eclipse the hypothetical loss of today's position (November RUT 1080/1070 Credit Put spread).

Trade Update - November 18, 2016

The position reaches expiration way out of the money, yielding max profit of $650

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Check out 2016 Track Record



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