9feb - Scotts Feb320/300 put spread from below is now at .63 , so about 70%ish loss since entry if you still hold. like I said below, if you buy an "insurance" or "hedge" position, you need to have a plan on when to exit that insurance. I guess hold all the way to opex in case the market crashes is a plan but you can quickly add up the losses on just the insurance plays. I exited mine with a slight win, hopefully your rolled or took profits also along the way. I don't follow Scott Nations on twitter so he may or may not have posted an exit as some point
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1Feb - finally got that selloff everyones been waiting on and the selloff where having "insurance" helps. lets see how the trades are looking from below:
Scott Nations Feb320/300 put spread at $2.90 is at $3.42, up 22 cents since last update. the time decay is eating into the returns. up 18% from entry
MarkLexus Buy Feb320/305 sell 334call at $1.37 is at 2.92 up $1.55 since entry, and a double. the short 340call is a 2delta now and worth couple cents.
full disclosure a couple days after my initial post I entered into my suggested trade minus the short call since im not long the underlying. $2.50debit, I closed that at $2.85 Friday afternoon for some lunch money. was looking like the spread would go out worthless but the down move got it back into the green so I wanted to close it as a win and since only couple weeks left to opex
going forward depends on your thesis, do you expect the market selloff to continue and both trades will gain in value (note that neither spread is in the money as I type so time decay will continue to grind away your profit/protection. or do you expect a rebound in some fashion. You have to have an exit plan on your "insurance" trade too. im thinking we got that big move that insurance is for, granted the market ran past the strikes so the profits on the insurance were not dramatic, also you are running out of days left for these Feb options.
Suggestions:
1. if you absolutely positively need to have an SPY insurance trade, consider rolling out of both of the trades and using that profit and putting on a trade in Mar. , the 320/305 put spread is going for $3.67ish so just a small debit to roll and gain 30 days of protection.
2. take profits. I did
3. hold for further downside. would not be my choice like I said. just be aware that the time decay is working against you. if you decide to hold for an expected further downside move AND you did my trade AND you are long the underlying, consider closing the 340call and selling the 332.50 call for about .75 additional credit. its at 15delta.
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5jan - update to current value of each trade from below with SPY at 322.41:
Scotts Feb320/300 put spread at $2.90 is at $3.20 now for +.30
MarkLexus Buy Feb320/305 sell 334call at $1.37 is at $1.78 for +.41
both have appreciated but both are an "insurance" trade, not a quick scalp. keep holding both in case of IranBoogaloo2020
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27dec - well well well, look whos back on Options Action. Scott Nations, I remember him from years ago being on the desk and rarely having a trade to offer up, just commentary on Mike or Dans trades. Guess he drew the short straw with everyone off for the holiday. so Scott actually comes right out of the gate with a trade on SPY for protection. here is the video clip.... SPY clip
I generally don't have anything against having protection on but I would chose different strikes and still try to minimize the cost even more if you are already long the shares. Scott is buying the Feb320/300 put spread for $2.90 ($290 per one lot). quick math at opex and stock below 300 this trade max profit is $17.10
I am guilty of this many times when selecting strikes by picking nice round numbers, instead for this trade I would reference the chart first. assumption being that on a pullback the 50day near 310 or the low from early Dec at 307ish might offer some support so my downside strike selection would be based on that area. also if the thesis is a possible selloff (and you are already long the shares) I would also sell an upside call to help finance this insurance put spread. selling the Feb 334 call for $1.30. its at 20delta which means 80% chance of profitability on the call sale. you still participate in upside move to 334.
my suggestion:
Buy Feb 320 put
Sell Feb 305 put
Sell Feb 334 call
Total debit is now $1.37 instead of the $2.90. your max profit if stock below 305 is $13.63
im always looking for ways to spend less money putting on a trade since I prefer to be the premium seller most of the time.
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