Option Investor


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The DOW was down 777 points. Wow! Just think of all the money that disappeared from accounts today.

When the market closed at 4 p.m., the S&P was at about 1128. I looked away for a few minutes and, when I looked back, 20 more SPX points had disappeared. Not fair. Oh well, life isn't fair.

An unbelievable day. Never saw anything like it. So, what do we do?

Let's look at an idea or two about how to handle the situation. Right now, the situation is handling us. The VIX was up almost 12 points. That's a bunch.

We're holding (at least many of us still are) the October 1110/1100 bull put spread. While I was distracted, we dipped into the money at 1106.42. It's not time to panic. Not yet. We have time. We still have three weeks left in this October cycle.

If you want to say "sayonara" now, it would cost about $4.20 to close the October spread. You could conceivably roll out to the November 1060/1050 bull put spread and take in about $2.80.

Then, you could complete the Iron Condor by putting on a November 1260/1270 bear call spread and take in about $1.90.

That's a total of about $4.70 - a net credit of about $.50. This is one way to adjust a trade and have a chance of coming out with a profit. It might take another month, but at least you have a fighting chance. If you don't like those strikes, there are plenty of others to choose from.

Tomorrow morning, the numbers are going to be very different. Do your due diligence and find something that is compatible with your risk tolerance.

This is another instance where it is in your best interest to have kept some powder dry. The new Iron Condor will have an additional maintenance requirement.

You have to keep in mind, however, that when some form of this damn bill gets passed, the market will come roaring back. How far? No way of telling. But you have to consider that when placing your bear call spreads.

Personally, for our Couch Potato portfolio positions, I'm going to hang on. However, if you gotta' go, you gotta' go. Again, everyone has their own risk tolerance.

Tomorrow the market may continue down a bit. But there should be some good news on the horizon - eventually - if the herd of self-serving politicians can agree on something worthwhile.

Good luck and be careful. These are dangerous times.


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