How to manage a spread to protect paper profits ?

Discussion in 'Options' started by SumZero, Jan 19, 2016.

  1. SumZero

    SumZero

    Assuming I enter following positions:

    LONG 1 ES Mar 2016 @1905

    LONG PUT Jan 22' 1905 @21.25
    SHORT PUT Jan 22' 1875 @11.00
    Debit of 10.25

    To finance that I enter in:
    SHORT CALL Jan 22' 1925@11.25

    Total credit 1.00

    (all these are weekly options and european style)

    This means that in the futures contract I'm protected downside between 1905 and 1875. Below 1875 I start losing "normally" as in any future contract.

    On the upside I have all the profits up to 1925 which is the profit cap.

    Now let's imaging that tomorrow price goes up to 1930.

    If the maturity was tomorrow the position would earn 20 points. However between tomorrow and maturity things can go backwards and evaporate profits.

    What's the best way to protect the paper profits ?
     
  2. newwurldmn

    newwurldmn

    Can't do it.
     
  3. ktm

    ktm

    Assuming the market stays above 1875 thru expiry, you can try to move your 1905P up incrementally.