TIME TO GET OUT OR GET ROLLIN
Earlier today it looked like the market may have turned the corner. The S&P was up almost 15 points. But it didn't last long. I guess it was wishful thinking -- another head fake. Traders simply didn't want to be in their positions overnight for fear of other bad news coming out.
So, it's time for us to make some decisions. Let's take it position by position. The numbers below are based on Wednesday's closing prices. I'm outlining choices, but the decisions are up to you.
Position #1 - We have 30 MID 720/710 bull put spreads and we're right at the money. If we close the position right now, it would cost about $3.00 (X 30 = $9,000). The rolled out Iron Condor has a remaining profit of $600. So, we would incur about an $8,400 loss on this position.
- If you buy back the MID bull put spread for about $3.00, you could conceivably roll it into a September 800/790 bull put spread for about $2.00 plus a September 890/900 bear call spread for about $1.00. You wouldn't have to trade any additional contracts. Basically, you would just be buying another month of time for the market to stabilize and come back a bit. By the way, you will need to also close out your August 920/930 bear call spread, but that can probably be done for a nickel or two.
Position #2 - We have 12 SPX 1400/1385 bull put spreads and we're 6.70 out of the money. If we close the position right now, it would cost about $5.20 (X 12 = $6,240). We originally took in $1,740. So, we would incur about an $4,500 loss on this position.
- If you buy back the 12 SPX 1400/1385 bull put spreads for about $5.20, you could conceivably roll it into a September 1390/1375 for about $2.90. Then add a 1495/1510 bear call spread for about $3.30. That's a total of $6.20. You wouldn't have to trade any additional contracts. You could actually trade a few less contract and reduce your exposure. Basically, you would just be buying another month of time for the market to stabilize and come back a bit. By the way, you will need to also buy back your August 1615 short call for a nickel to free up your maintenance.
Position #3 - We have 30 RUT 730/720 bull put spreads and we're 21 points out of the money. Under normal circumstances I'd say let it ride. That's going to be up to you. There's only one trading day left to expiration (plus the Friday morning settlement). If we closed that position now, it would cost about $.75 (X 30 = $2,250). We still have $900 of premium from the rollout so our loss would be about $1,350.
- If you buy back the 30 RUT 730/720 bull put spreads for $.75, you could roll out to the September 660/650 bull put spread for about $.80 and add 70 points to the cushion for September. You wouldn't even need to add the bear call spread if you didn't want to. If you did, you could look at the 840/850 bear call spread for about $.60. Don't forget to buy back the August 850 short call for a nickel.
These rollout ideas can be done, but, if you believe that the market is going to continue down for an extended period of time, it's best you get out, conserve your trading capital and live to trade another day.
It's a shame that all this is happening just a few days prior to expiration. The initial rolling out of positions, under normal circumstances, would have worked out just fine. This market movement happens once every five years. But, this is just one more piece of proof that the market has a mind of its own.
Also, remember that the market prices tomorrow morning might be significantly different than what I've included here. Be flexible and get everything ready before the open. Double check your strikes and option symbols before placing your orders.
those pushing for the Fed to intervene before tomorrow's open and pump in some
more liquidity or even cut the interest rate by < or = point. Don't hold your breath waiting for that to
happen. If it does, great. Expect the worst - and prepare for it. DON'T
WAIT FOR ME to send you an email!
Go over the alternatives and select what best fits your risk tolerance.
Good luck and be careful!