ES bear call spread - advice please

[boffster]

Hi,

First off, I'm a learner.

I opened a bear call spread using E-mini S&P 500 Jan options on November 4 as follows.

ES JAN 2012 1100 Call - Sell to open
ES JAN 2012 1150 Call - Buy to open

Credit of 41.25

Held to expiry, max risk $437.50, max profit $2,062.50, break even when S&P is at 1141.
Figures above taken from the optionsXpress "trade & probability calculator".

The advice I was after is this. The S&P has had a big fall. I am currently showing a profit of about 100% on my risk and think that the S&P is currently oversold. Can I buy any cheap protection or is it just a case of close out or suck it up and hold on to expiry?

Thanks.

 

[jo0477]

Quote from boffster:

Hi,

First off, I'm a learner.

I opened a bear call spread using E-mini S&P 500 Jan options on November 4 as follows.

ES JAN 2012 1100 Call - Sell to open
ES JAN 2012 1150 Call - Buy to open

Credit of 41.25

Held to expiry, max risk $437.50, max profit $2,062.50, break even when S&P is at 1141.
Figures above taken from the optionsXpress "trade & probability calculator".

The advice I was after is this. The S&P has had a big fall. I am currently showing a profit of about 100% on my risk and think that the S&P is currently oversold. Can I buy any cheap protection or is it just a case of close out or suck it up and hold on to expiry?

Thanks.

Depends if you think the oversold conditions are temporary, resulting in a short bounce and then back down or if you're anticipating a full reversal.

Easiest thing for a full reversal would be to buy back the 1100 and hold the long 1150 - easy to get out of if your directional bet is off and you've booked your profits on the short.

If you think its a short term bounce, you could always leg in a closer month OTM call to mitigate. This way you can capitalize on the brief upswing and leg out when the market starts to turns back down, leaving you with your original position (If you want to continue holding the entire spread). Or if you're wrong, you would lose the cost (or hopefully only a portion) of the protective call but it would not wipe out all of your original credit.