Coach: The box idea looks interesting and I'm looking forward to watching how it plays out. The thing I'm not clear on is why you put on additional bull puts as opposed to bear calls. By putting on the box it seems to me that you are very concerned about a drop so why take on more risk in that direction by taking on more bull puts. Why not go the other direction and sell bear calls?
Basically, my fear is not of an absolute crash but of a move lower to previous lows in the range of 1240 and possibly 1225. A serious continuation of the turmoil overseas could get us to 1200 by MAR. Since I use 10/15 points away as my decision point on adjustments I decided to effectively roll down to the 1180 strike since I feel more comfortable with that strike than the 1195 and being close to 1200. MAR is a witching SET. I also am more curious to walk through the adjustment and roll down to see how it plays out. If we get any crawl higher I do intend to sell call spreads now because I feel the headwinds are stronger than I first estimated and feel that 1330 is a safe strike to look at. So if I can add the 1330/1345 I will. The main reason for adding the put spreads was to finance the "roll" to lower strikes. I could not get any credit at call strikes I was comfortable with on a down day and with a strong down day I grabbed some puts. I know many of you wish these trades followed a scientific approach but many times I go with my feelings and instincts and sometimes it is hard to replicate that thought process here. 1180 feels a lot safer than 1195 and if we do get below 1220 anytime in FEB then I will consider additional adjustments to the 1180 strike if more drops are coming. Iran is a wild card and I do not want to wake up and see SP futures down 10 in the pre-market LOL.
JA got some nice head and shoulders too... Sorry could not resist. SPX had a H&S top in my opinion so it would maek sense the OEX following a similar pattern.
Well I took advantage of hte upday to get into some calls because I think today was most likely a pullback to previous support, now resistance. Even if we slide back in the upward sloping channel (see graph attached below) I see us rangebound and not making a strong run over 1300. So I entered the following: - 175 MAR SPX 1335/1350 Call Spreads @ $0.40. This results in 175 IRON CONDRS 1165/1180/1335/1350 for a total credit of ($0.75 + $0.40) * 175 spreads = $20,125. With the $9,000 loss from adjusting/Boxing the net credit is $11,125 with a adjusted net risk of $251,375 or a return of 4.4%. I have a larger capital base this year so I am ratcheting up the amount of margin I am willing to commit to this strategy. Right now the total margin is higher because of my FEB 1190/1205 positions but I am expecting them to expire worthless and clear up that margin which I will not use since I already am loaded for March. Today's rally is a move back to the previous support so the strong headwinds still exist. I think even if we move into the channel again, world fears and inflation/rate hike discussions will keep us below 1300. In the short-term the 50-day MA is hovering near 1270 fo additional resistance if we poke into the channel.
Coach, Can you elaborate on what actions, if any, you will take at expiration to fully close out the Box you have? When you said earlier that the Box is essentially like closing the put spread, it threw me off because that sounds like you would let the whole thing expire (as in take no more actions). But it seems that there would be some sort of closing transaction steps to take. Thanks! BTW, I want to say 'Thank You' because it was mostly due to listening and learning from your contributions here that enabled me to trade profitably in 2005. I am very grateful!
Thanks for the kind words. With respect to the box, I will simply let it be exercised/assigned at expiration. Since it is a cash-based index, my account will simply be debited/credit the difference between the premium taken in and the cost to close the legs (i.e. assigned at 1185 Call and forced exercise of 1195 Call). The only concern is if the index is right at one of the strikes and one leg is not exercised/assinged (pin risk). However since I will not take possession of any stock there is not the same carryover risk to Monday. The risk is for example that the short cal is assigned and the long call is not exercised. I will have to make a decision on the last trading day as to whether I let it go or close it myself.
We closed right at a resistance line as indicated below. Should be interesting to see what the follow through is...