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Monday, April 9, 2018

May RUT Elephant

Trade Details:

SELL 20 RUT May 1385/1375 Credit Put spreads @0.57 Credit
SELL 8  RUT May 1630/1640 Credit Call spreads @0.92 Credit

Upside and downside hedges:
BUY  12 IWM May 164 Calls @0.22
BUY    2 IWM May 141 Puts @0.96

Total Net Credit: $1,420
Days to Expiration: 39



For a smaller account ($20,000), this can be played as a 4/4/2/2  and then the hedges: 4 IWM Calls and 1 IWM Put (139 strike to spend less debit). OR half all that for an even smaller ($10,000) account, without the long IWM Put.

Risk profile:
 

RUT Chart for future reference:



Trade Update - April 18, 2018

Closed entire Call side of the Elephant:

CLOSED 8  RUT May 1630/1640 Credit Call spreads @1.90 Debit
Original credit received was 0.92 so this is a net loss of 0.98 per spread. $784 for 8 spreads in dollar terms.

CLOSED 12 IWM May Long 164 Calls @0.30 Credit
Original debit invested here was 0.22 per contract. Net 0.08 gain per. $96 in dollar terms for 12 contracts.

Net-net (96 - 784) the loss taken was -$688

The Put side is still in play and its credit is greater than today's loss. Being down in the 1385 neighborhood it is a very high probability winner with a RUT index now trading above 1,585.


Trade Update - May 4, 2018

Closed entire Put side of the Elephant:

CLOSED 20  RUT May 1385/1375 Credit Put spreads @0.05 Debit
Original credit received was 0.57 so this is a net gain of 0.52 per spread. $1,040 for 20 spreads in dollar terms.

CLOSED 2 IWM May Long 141 Puts @0.11 Credit
Original debit invested here was 0.96 per contract. Net 0.85 loss per. -$170 in dollar terms for 2 contracts.

The Net result for the Put side is therefore +1040 - 170 = +$870
The gain on the Put side (+$870) today overcomes the early loss on the Call side (-$688), resulting in an overall small winning trade.

The May Elephant position is now entirely closed.



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