What is your most common used adjustment if an options credit bull put spread...

Discussion in 'Options' started by nixodian, Jul 16, 2009.

  1. nixodian

    nixodian

    ...has its short put go ITM?
    same for credit bear call spread.

    l use IB who do you use as broker?
    thanks in advance
     
  2. MTE

    MTE

    No such thing as the most common adjustment, it depends on the situation and your plan. For me, it closing out the spread.
     
  3. u21c3f6

    u21c3f6

    +1

    Joe
     
  4. Assuming that it's not a gap or fast market in the underlying that drives it ITM, adjustments should be considered BEFORE it gets ITM.
     
  5. Choose something that suits your comofrt zone:

    1) Close entire trade

    2) Close portion of trade

    3) Roll spread to another month (This is the most common, but usuelaly not well-thought out). ONLY roll is you like the new positioin and want to own it.

    4) Buy a naked put or two as protection. Choose a put that will HELP. Not some OTM cheap option.

    This really is an individual decision - don't take a poll.

    Mark
     
  6. You're getting good advice from all of the above. I really like Dan Sheridan's little saying which goes somewhat like this: Make plans in times of peace, not in times of war.

    This means before you initiate the spread, you should know when and how you will adjust based on how the situation develops. Your plan should include a time component, and a price component because both of these are critical to your decision making. With many positions, you will also want to include a volatility component, as well (although with a narrow spread you will not have to worry as much about this).

    Once you have set these three parameters, you have strategic choices that might help (see Mark's comments) , but remember that closing the position is often your best strategic choice.
     
  7. randy33

    randy33

    I dont know of any way to make credit spread works in the long run. You are tempted to sit out the shorts until it expires and in the mean time your losses are mounting. At the last moment your emotion got in the way and you take a steep loss to close. Anyone have a real solution to this ?
     
  8. 1) Dont use strategies where you don't know how to make them work in the long run

    2) Don't be tempted to sit out the short until it expires

    3) Don't let your losses mount

    4) Don't let your emotion got in the way

    5) Don't take a steep loss to close


    6) Don't get caught with your shorts down


    Four more and this could be a top ten Letterman list :)
     

  9. I add this piece of advice:

    If you are unable to stick to these rules, just accept the fact that trading is not for you.

    Mark
     
  10. randy33

    randy33

    One possible rescue plan is to sell another credit spread on the opposite side. For example, your credit call spread is losing money and approaching in-money$. Sell a put spread for same month same security. The idea the credit$ you get for the opposite spread will help pay for the loss on the call side. Something to consider. There are many downsides to this obvisously one is you are getting deeper and if the stock is highly volatile you might get ding on both sides. A lot of risks you have to consider.
     
    #10     Jul 19, 2009