Unless the bears come out of hibernation, we will let this May 1 position expire with a small gain.
For those of you paper trading or following our new "test kitchen" trade on SPX, I wrote in last weekend's update that we would likely adjust the position once again to protect the upside move this week. A summary of the current position is shown below:
This new trade was entered in Paper Money Wednesday, February 24. Position details are below:
- BOUGHT 3 SPX May 1 1915 Put, 73.40 debit.
- SOLD 6 SPX May 1 1875 Put, 58.10 credit.
- BOUGHT 3 SPX May 1 1825 Put, 43.40 debit.
Order was filled as a "Butterfly" for $.60 net debit(all three legs) per butterfly.
On Thursday, March 17, with SPX trading at 2034, a small adjustment was made to smooth the upside T +0 line. Adjustment details are below:
- SOLD (2) SPX May 1 1915 Puts, 13.40 credit.
- BOUGHT (2) SPX May 1 1895 Puts 11.10 debit.
- SOLD (2) SPX May 1 1825 Puts, 5.80 credit.
- BOUGHT (2) SPX May 1 1845 Puts, 6.90 debit
The adjustment filled for a net credit (all four legs) of $1.20
The risk graph as of the close yesterday is shown below:
SPX May 1 Bearish Butterfly:
The planned adjustment outlined in the weekend update was to make the same adjustment for the third contract as we did with the other two on March 17 (rolling in upper and lower long puts). However, as of this morning the credit to make the adjustment is only $.30 (all four legs).
The trade as it sits right now has a gain locked in of +$60 at expiration. If we are fortunate enough to get a pullback between now and expiration (May 6), we could see a boost in that gain. I don't feel it is worth giving up the downside potential for such a small credit to make the adjustment, so we will just leave the trade to expire unless we see a decent pullback.
We will plan to enter another bearish butterfly (Paper Money) sometime either this week or next. We will wait for a flat or slightly down day to enter the position.
Trade updates will be published as appropriate.
As always, stay keen on your risk management and trade carefully,