Bear Put Spread Question

torontoman · Oct 28, 2009

My first bear put spread, so please don't tell me that I am an idiot. I already know that.

Okay, so last week I got a SPY bear put spread. 108 and 104. It costed 1.00. The market tanked. Hurray for me. SPY is at 104.3. I would love to get out at 3.7, but that stupid 104 put is at 2.57, which makes the spread worth only 2 dollars. Is there anyway I can adjust this to maximize a profit and protect it?

Thanks in advance for answering.

erol · Oct 29, 2009

Didn't you double your money? Why not close the position?

MTE · Oct 29, 2009

Quote from torontoman:

My first bear put spread, so please don't tell me that I am an idiot. I already know that.

Okay, so last week I got a SPY bear put spread. 108 and 104. It costed 1.00. The market tanked. Hurray for me. SPY is at 104.3. I would love to get out at 3.7, but that stupid 104 put is at 2.57, which makes the spread worth only 2 dollars. Is there anyway I can adjust this to maximize a profit and protect it?

Thanks in advance for answering.

That's the nature of the vertical spread, it needs time decay to widen out. There's no adjustment that would magically give you 3.7 instead of 2.

spindr0 · Oct 29, 2009

Quote from MTE:

There's no adjustment that would magically give you 3.7 instead of 2.

I think that's called a LIVE TRADE on Elite Trader

daytrader85 · Oct 29, 2009

Quote from torontoman:

My first bear put spread, so please don't tell me that I am an idiot. I already know that.

Okay, so last week I got a SPY bear put spread. 108 and 104. It costed 1.00. The market tanked. Hurray for me. SPY is at 104.3. I would love to get out at 3.7, but that stupid 104 put is at 2.57, which makes the spread worth only 2 dollars. Is there anyway I can adjust this to maximize a profit and protect it?

Thanks in advance for answering.

I think if you had bought a back dated month option spread, you wouldn't have run into that trouble. You might not have doubled your money if you look at it in absolute terms, but if you were willing to pay a little bit more to put on the spread, your profit in dollar value will be higher.

Am I correct?

If you had bought a Jan 108/104 Put spread vs. a Nov 108/104 Put spread, the January spread would have returned you a higher amount of money, but percentage wise, would be less. Right?

spindr0 · Oct 29, 2009

Quote from daytrader85:

If you had bought a Jan 108/104 Put spread vs. a Nov 108/104 Put spread, the January spread would have returned you a higher amount of money, but percentage wise, would be less. Right? [/B]

Near trem spread has higher delta so $ return higher and % gain higher higher since lower cost.

torontoman · Oct 29, 2009

Quote from spindr0:

Near trem spread has higher delta so $ return higher and % gain higher higher since lower cost.

I appreciate your input everyone. I closed the position today at 1.55. I am satisfied and at the same time, I did not know how to deal with it. So I closed it and will research more on this. Again thanks.

traderlux · Oct 30, 2009

tman,
Go to 1option dot com and read his post on "the problem with debit spreads". Describes what you ran into, I think.

"To complicate matters, as the spread âgoes your wayâ, the option you sold will pick up speed along with the one you bought and your gain is muted."

erol · Oct 30, 2009

maybe I'm thinking about this wrong, and the more experienced traders can correct me...

but after trading ITM Calls I started to like ATM Verticals, since I could be long theta if I was wrong on direction, and as time passed, my delta's would increase, instead of decrease.

I know the point of a vertical was to be long for cheap, but that leaves you with a low delta.

I basically setup my vertical to match the delta I wanted from an ITM option (roughly 70 deltas). The cost was slightly more than the ITM option, but if it went the other way, and I had to wait a few weeks, my deltas would increase without increasing my break even. And instead of having a max delta of 100, I now was long maybe 6-8 contracts, giving me a potential of 600-800 deltas if I really screwed up and had to wait.

It's a lot of money to put into a trade... but compared to owning the shares, it's a fraction of the cost, gamma and vega are relatively low, and within a certain price range, you're long theta.

torontoman · Oct 30, 2009

Quote from traderlux:

tman,
Go to 1option dot com and read his post on "the problem with debit spreads". Describes what you ran into, I think.

"To complicate matters, as the spread âgoes your wayâ, the option you sold will pick up speed along with the one you bought and your gain is muted."

Thanks Traderlux. Will do.