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BookingAlpha Option Trading Advisory

Tuesday, August 14, 2018

September SPX Elephant

Trade Details:

SELL 40 SPX September 2650/2645 Credit Put spreads @0.30 Credit
SELL   9 SPX September 2925/2935 Credit Call spreads @0.80 Credit

Long hedges:
BUY   9 SPY September 293 Calls @0.40
BUY   1 SPY September 269 Puts @1.22

Total Net Credit: $1,438
Days to Expiration: 38

Risk profile:

SPX Chart for future reference:

Trade Update (August 27, 2018)

Closed CALL side of the Elephant:
9 SPX September 2925/2935 Credit Call spreads @2.65 Debit
Original credit was 0.80. Net loss is 1.85 per spread. A $1,665 loss.

9 SPY September 293 Calls @1.03 Credit
Original debit invested was 0.40. Net gain is 0.63 per contract. A $567 gain.

Combining both pieces, the Call side resulted in a $1,098 loss.

Trade Update (September 21, 2018)

Put side of Elephant expires:

40 SPX September 2650/2645 Credit Put spread. A $1,200 gain.
  1 SPY September 269 Puts. A $122 loss.

Net gain: 1200 - 122 = $1078

The September SPX Elephant is now entirely closed.
Combining today's gain with the earlier loss on the Call side, it was a small $20 dollar loser.

Usually when the Call side of an Elephant is closed, it is done at a much smaller loss than the Credit received from the Put side. Typically resulting in a net winning trade overall. However, in this case, the Call side was closed on a morning Monday after a significant gap-up. So, it was closed way beyond its defense line, hence resulting in a larger than normal loss on August 27.

Still, a $20 loser, despite everything, is better than what would have normally happened to a regular Iron Condor or Strangle. The initial short Call options were at strike 2,925 and the market has moved beyond that.

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