The other day we put a bear call spread on our RUT 620/610 bull put spreads to complete our Iron Condor - but only for 10 contracts, not 20. There are another 10 RUT bull put spreads we haven't turned into Iron Condors yet. Why? Because I'm still not comfortable with the upside and I wanted to limiy the risk. Seeing the up action the last few days, the bear call spread might not have been a great idea.
I'm not really concerned, but there are still seven weeks left and a lot can happen. Sixty-five points is not a huge cushion, especially for seven weeks of exposure.
I'm still thinking about an SPX position for July, starting with a bull put spread. I'd like to see a pullback tomorrow morning to put on something in the 1250/1240 area. We may not get it. If we don't, then I'll have a decision to make.
Our June positions are in fine shape. Many of you who had the 590/580 bull put spread have already closed the position for a nickel to free up some maintenance dollars. As I've said before, there's no reason to hold onto a position for three additional weeks for a nickel when those maintenance dollars are needed for other opportunities.
Back By Popular Demand
SPX at about 1398 (Thursday's closing price), let's:
Remember, we have to give back $70 of the $87.50, so our maximum potential profit is $17.50 (x 400 = $7,000). The maximum profit will be realized at expiration - IF the S&P 500 settles anywhere between 1365 and 1435. However, there are three weeks left to expiration, and a lot can happen in three weeks. It's more realistic that we shoot for a nice profit with the intention of closing out the position prior to expiration.
This is a maintenance intensive trade - unless you have customer portfolio margining. Then, it's quite reasonable If you don't have customer portfolio margining, you can do this trade by buying long options about 120 points from your short options. For instance, you could buy the 1485 calls for about $.60 and the 1315 puts for about $3.90. That means you'll be using $4.50 of the potential $17.50 profit, leaving a net potential profit of $13.00.
It will require about $12,000 per contract in maintenance. You can adjust the number of contracts to your risk tolerance and account size. I will follow this hypothetical trade in the newsletter. Should be fun. If you haven't traded this strategy before, try it with a single contract until you get comfortable with the thought process and your emotional reactions to the situations that will inevitably come up.
More From Larry the Cable Guy
CPTI JUNE POSITIONS
CPTI June Position #1 - SPX Bull Put Spread - 1398.26
On 4/18, with the SPX at about 1392, we sold 20 SPX June 1235 puts and bought 20 SPX June 1225 puts for a credit of $.70 ($1,400). Maintenance is $20,000. We will look to put on a bear call spread in the future ? IF it makes sense.
CPTI JUNE Position #2 - RUT Bull Put Spread - 745.55
On 4/22, with the RUT at about 709, we sold 20 RUT June 590 puts and bought 20 RUT June 580 puts for a credit of $.55 ($1,100). Maintenance is $20,000. We will look to put on a bear call spread in the future - IF it makes sense.
CPTI JULY POSITIONS
CPTI July Position #1 - RUT Bull Put Spread - 745.55
On 5/23, with the RUT at about 735, we sold 20 RUT July 620 puts and bought 20 RUT July 610 puts for a credit of $.65 ($1,300). Maintenance is $20,000.
CPTI July Position #2 - RUT Bear Call Spread - 745.55
On 5/28, with the RUT at about 732, we sold 10 RUT July 810 calls and bought 10 RUT July 820 calls for a credit of $.50 ($500). This bear call spread completes an Iron Condor for 10 of the RUT bull put spreads previously put on 5/23.
ONGOING STRATEGY - THE ZERO-PLUS Strategy
JULY ZERO PLUS POSITION ? RUT ? 745.55
On 5/20, with the RUT at about 721, we sold 30 RUT July 610 puts and bought 20 RUT July 600 puts for a credit of $.70 ($2,100). Maintenance is $30,000. We will look to put on a bear call spread in the future ? IF it makes sense.
SHORT & SWEET - RUT - 745.55
On 5/18, we opened a new hypothetical Short & Sweet position, selling 4 December RUT 530 puts and selling 4 RUT 930 calls for a total credit of $10.30. Then, we purchased 4 of the July 550 puts and 4 of the July 890 calls to give us two months (June & July) of protection for $.60. Our net credit, thus far, is $9.70.
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