Description: Initiating a long delta position in RUT via a credit spread.
Justification: - Directional Play: Yes, adding long delta and improving my theta/vega numbers with this short duration, high IV play. - Technical: Below 20 and 50 moving averages. We finally saw what markets crashing down looks like (again); in the /ES we took out a VPOC and currently sitting in last week's balancing zone. - Fundamental: Earnings continue to improve; Fed really supportive; jobs data positive; ISM manufacturing higher; market participants equally split between bullish and bearish. Virus data questionable.
If/Then: - Take profit? 50% of credit received. - Where will you hedge? $1605
Strategy Details: - Short and Long leg: $1595, $1575 - Short Leg Delta: 0.10 - Duration: March 6
Disclaimer: This is a page where I look to share knowledge and keep track of trades. If questions, concerns, or suggestions, feel free to comment. I think everyone can improve (myself especially), so if you see something wrong, speak up.
Trade active
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Crazy week and tons of adjustments. Will post updates as soon as I get a chance.
Thank you. I see there are some choic s here.i actually thought of a few myself. I tried to get out of my position today. The spread i have is short 1550 puts long 1545 puts expiry 2/28.
Will try to get out tommorow. Time decay will accelerate tomorrow, but if there's another free fall that would compensate for time decay
Physik
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@rk4k, man we've had a week. Hope you were able to make adjustments. I can't even count the number I made over the past few days. Will post updates when I get a chance, but was able to eliminate risk to the downside today. I am net short delta's in the RUT now. Took the small breather earlier today to fix things up.
Physik
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@rk4k -- What a week! Here is how I managed to reduce my directional risk and turn this massive loser into a winner.
rk4kT
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Based on your credit put spread, you believe Russell stays above 1595 by March 6th? What about this blood bath today...are you chanGoing your opinion? OR do you believe this is a knee jerk reaction. Certainly doesn't feel that way.
Thanks for your post. Look forward to your response.
Robert
Physik
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@rk4k, a true blood-bath it was.
Overall broad market opinion remains bullish. I’d like to note that I’m not ignorant to the insane complacency and poor structure beneath us (e.g., gaps and untested points of control).
This market -- despite the negative sentiment -- has room to go higher. For example, we have businesses investing less in the future, a sign that companies are frugal and this sets us up at less risk for economic collapse (Axios). We have a Fed willing to actively change their view and adjust policy as needed (Cumberland). We know that historically, "Epidemics normally have a severe but relatively short-lived impact on economic activity, with the impact on manufacturing and consumption measured in weeks or at worst a few months” (Reuters). I understand that low yields have driven massive inflows into passive investing and there has been an emergence of inane derivatives market activity. I do know that the economy took a dump in February due to the virus and economic slowdown worries (Axios 2). I know that subprime loan delinquencies have been rising. I know that farming has been hit. I know that air freight has been sluggish. There’s good and bad -- my point is that I don’t think we’re at the generational top.
That said, what can I do with this hurting position? I can sell something on the call side to reduce my directional risk and margin requirement. I can roll out the position in time. I can roll out and down. I can encapsulate the position with a debit spread or butterfly. I can buy a long option, 30 days out, at the short strike of the credit spread. All these adjustments will lower my risk in the trade.
What did I already do? I sold call spreads in the $1700 area today (with short strikes placed at a 10 delta). This brought in extra premium and neutralized some of the long delta I had in the position.
If the market continues tanking? I will look to continue adding on the call side and will look to either roll out, or add some sort of debit component.
Overall, going into the trade, I knew what I was going to lose. If the market were to fall straight through and I did nothing but roll I’d take in premium against my fixed risk, helping reduce the overall loss on the position incrementally with each roll.
I’ll be posting updates as I make adjustments. Hope I didn’t confuse too much.
Will try to get out tommorow. Time decay will accelerate tomorrow, but if there's another free fall that would compensate for time decay