S&P500 ETF (SPY) trade – Update #3 (final!)

I mentioned SPY Bull Put Credit Spread trade on 20 Dec 2015 with two updates on 21Dec and 25Dec.

If you follow this trade, I hope you have adopted the suggestion posted on 25Dec, which is to take profit and move on to the next trade. However, if you still hold on to this position, you don’t need to worry as well.

Let’s recap this position

Bull Put Credit Spread – 2 options trade as per below:-
1. STO SPY 195 PUT strike, Jan wk5 2016, 39 DTE, premium $3.3
2. BTO SPY 190 PUT strike, Jan wk5 2016, 39 DTE, premium $2.1

Total Premium captured was $1.20 ($120 per options contract) 

Fast forward to today (29 Jan 2016), 
1. SPY 195 PUT strike, Jan wk5 2016, 0 DTE, mid premium price $6.35
2. SPY 190 PUT strike, Jan wk5 2016, 0 DTE, mid premium price $2.00

If we close the position when market open, we will need to pay $4.35 ($435 per options contract). As we received $1.20 ($120 per options contract) earlier when we open the position, our total loss is $3.15 ($315 per options contract). It is not bad as the position is protected. Imagine if you buy this ETF at 195 and now it is trading at around 189, your unrealized profit will be $6 ($600 per equivalent options contract), which is double the loss of the options trade!! Do note that the lowest SPY price was $181. If you monitor the price movement frequently, you may have sold it at that price (loss $1600 per equivalent options contract) if you were fear!!

However, it is blessed that we are options trader! As an options trader, there are more options (pun intended) we have to salvage the situation. 🙂

#1, we can roll the position to further month to let the probability to play out. Basically, what it means here is to close this Bull Put Spread position and open the next month Bull Put Spread position, but with lower strike (e.g. 185-180) to increase the probability of success and capture back the premium. 
#2, we can construct a Bear Call Spread at $200 resistance level to capture extra premium. 

Depending on individual’s perception of the market, we can do #1 (Bull Put Spread) or #2 (Bear Call Spread) or both #1 and #2 (Iron Condor). My personal view base on the chart is that in short term (within a month or two), the market should trade sideway before resume downside move (I am longer term bearish). Hence, I would prefer to construct #1 and #2 in order to capture more premium. 

Lesson
A) We do not need to wait until the last day to repair. We can repair when the market goes against us. In this case, repair when the price drops below $200. It is always good to use support/resistance as a pivot point to repair.

B) It is highly recommended to close position when 50%-60% of the profit is captured. This prevents a profitable trade becomes a losing trade. We enter a trade when the probability of success is high. However, high probability does not mean 100% profitable, we will need to respect the market and the market is random! Cheers! 

 

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