Well, we seem to be settling around that 1190 technical point I referred to in my previous post below. As a result I have not made any adjustments yet to my SPX or XEO position. Those of you watching your positions must see some crazy ass bid ask spreads and huge paper losses showing up. One of the downsides of this underlying is that the option prices go out of whack on large moves and your broker usually prices your posiitons to close at the bid or ask. Something you might have to get used to. 1190 seems to be holding.
I am not saying I aint concerned but I feel better that we are closing above 1190 and therefore want to wait before making an adjustment.
Here is my approach right now. For OCT I have about $12,550 in credits (less after commissions). I spent about $1,350 on that SPY butterfly. I am WILLING to spend as much of my credit as necessary to provide partial hedges (more SPY puts, SPX bear put spreads) to protect me against greater drops in the market. I am WILLING to even accept no loss/no gain for the month if I can hedge myself and get out. Therefore, tomorrow if the market starts dropping below 1190, I would be willing to spend another $5,000 in puts to make money on the drop to cushion the blow of rolling down my put positions. I would even venture to say that I would be WILLING to spend up to 75% of my credit premium to protect myself. I am not concerned with making money this month at the moment, I am concerned with not losing any money.
SO tomorrow stay tuned closely because I might be a busy little beaver going long SPX or SPY or even OEX puts as a full sandbag wall assault on the flood waters coming my way. If OCT is a month with only minimal gains, then I did my job as a risk manager. If OCT is a month with $0 gains or loss I am still happy. If OCT is a month with a small limited loss, then I chalk it up as my 1 or 2 out of 12 and be happy that I acted to limit my losses as best as possible. Remember I am up about 20% with respect to return on margin. If I have to give back a net 3% or so while limiting my risk, then I am still positive and WELL above the market.
This is the sacrifice you may need to make. Willing to give away the premiums for OCT to eliminate or drastically reduce your potential for losses and look forward to NOV.
Risk Management! I cannot stress it again and again. If I have $12,000 in premium, then I will have no reluctance to spend all $12,000 to lock in a month with $0 loss or gain. If I do that I will actually consider it a success since I have my long-term annual gains to protect and end of the year return goals to shoot for. Your premiums might be smaller or bigger but the approach should be the same.
As I said, 1190 is a technical support for a few reasons and it held today which makes me happy. But tomorrow is another day and 1180 is the next support level. With short strikes at 1175 I need to stay on top of this. Same with my XEO position. So if it looks red tomorrow, I go on a put buying spree and may roll down at the same time. I may also look into selling call spreads to keep premium coming in although I may not have much to choose from with such downward movement and may not be able to go to far OTM. However, even if I can only get $0.30 or so, every dollar counts as long as I plce those calls in a good zone (do not know what that is yet depending on tomorrow's move).
So the rain is falling and my FEMA plans are in place. One thing to realize is that I am making this plan now when the market is closed and I am calm. Waiting until tomorrow might lead to panic. I have analyzed the 1190/1175 SPX put spreads and the 1190/1170 SPY spreads and will look at some more tonight.
Ok folks, sleep well and remember that with a good risk management in place, losses are inevitable but not painful. Tomorrow our goal is to protect protect protect and forget about profits.
Phil
Quote from optioncoach:
I see one potential technical projection to the 1190 level and tht is my next support level for now. We will see what happens in the next day or so and I will have to evaluate both my put spreads (on the XEO and on the SPX).
Lot of negative sentiment and a huge professional short day. Could have the smart money come back in for bargains or continued panic lol. The antennae are now tuned heavily and will be watching closely.
Phil
