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BookingAlpha Option Trading Advisory

Friday, December 11, 2015

IWM Synthetic Stock Hedged 112/112/120

In the middle of today's chess game, I entered the following position:
Trade Details:
Buy 4 IWM March 112 Call (@4.75)
Sell 4 IWM March 112 Put (@5.05)
Buy 4 IWM March 120 Put (@9.60)

Net Debit: 9.30
Max Risk: 1.30 ($520 in 4 contracts per leg)

Despite the large debit necessary to put this trade, the Max risk in the position is way less than that: only $130 per contract. This is one of those strategies that do not make sense on a small portfolio given the margin consumed but make perfect sense in larger ones.

Position profile:
(Click on image to enlarge)
Same profit picture as a Long Out of the Money Call. But way, way more powerful because of how it can be managed later.

Note to LTOptions members: new materials were uploaded today that detail when exactly to enter this position, which strike prices to use, how far from expiration, when to take profits, or when and how to manage the position if you want to lock-in guaranteed gains, removing risk and staying in the position, giving yourself a chance to indefinitely participate in additional gains should the market keep moving in your favor.

A Chart of IWM at market close for future reference:
(Click on image to enlarge)

Current Positions:
January SPX 1865/1875/2200/2210 unbalanced Iron Condor
$2,300 credit. 5 weeks to expiration. SPX currently at 2,012

January RUT 1015/1025 Credit Put Spread
$1,200 credit. 5 weeks to expiration. RUT currently at 1,123.

January IWM 95 Long  Puts
20 contracts for downside protection against the Apocalypse. $560 debit invested.

January SPY 169 Long  Puts
9 contracts for downside protection against Nuclear Armageddon. $486 debit invested.

March IWM 112/112/120 Synthetic Stock Hedged
4 contracts, $520 max risk. Unlimited upside potential. 98 days to expiration.

Trade Update
Full loss of $520 on March 17, 2016.

Check out 2016 Track Record

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