Trade Update – Time to close out all remaining RUT Sep 620/630s
If you have yet to do so, it’s time to close out all of your RUT Sep 620/630 bear call spreads. You cannot wait any longer than 3 hours prior to the cease of trade today. After 3 hours, liquidity starts to dry up and it gets harder an harder to get a fill….and the debit price also starts to climb….especially in the last 1.5 hours.
Per the RUT Sep 630/640 bear call spread that some of you opened to bring in more premium, you could either hold onto this spread through settlement and let it expire, or close it out today, up until 3 hours prior to cease of trading today. If you decided to hold it, there is settlement risk because we never know exactly where the RUT will settle Friday morning. But because there are no major announcements tomorrow, and because the market has climbed so aggressively in the last week, there is a good chance that the RUT will settle Friday morning below 630. For more on the settlement process of European style options please visit the FAQ Page. If you don’t feel comfortable with the settlement risk then you should close it out 3 hours prior to the end of trade today, Thursday.
And for those of you who have the SPY Sep 108/111 bear call spread, because this is an option on an ETF, it trades American style and it will trade through the end of tomorrow, Friday, and where the price closes at on Friday is the final price. As of this writing the SPY is at 107.1 and you could continue to hold it longer, and maybe even hold it through close of trade on Friday where you will then keep 100% of the premium collected. If at any time the SPY touches 107.7 you should immediately close it out.
What’s the biggest point/percentage jump between thursday close and friday settlement price you’ve seen?
Hi Brad….I am impressed on how we adjusted this trade. Being somewhat new to this, I was sweating bullets all day Wednesday and Thursday. I closed out my 630-620 position on Wednesday, and re entered the 640-630. I got to watch how the rising market affected the Gamma and Theta on Wednesday, and believe that the right choices were made, considering the great risk involved at that time. I did learn alot. I am thinking of Autotrading, mainly because of what could have happened on those days if I had not been home to close out and adjust those trades.
When volatility was high in late 2008 and early 2009, the RLS could settle 25 points higher or lower than where the RUT closed at on Thursday. Pretty crazy. At that time the RUT was around 440, so in order to feel comfortable in holding our spreads all the way through expiration and settlement we would want our short legs of our credit spreads to be at least 25 points away. So the short call leg strike price would need to be at 465 or higher, and our short put leg strike price would need to be at 415 or lower. And if not, we would close our spreads out on the last day of trade before expiration on Thursday, 3 to 4 hours prior to cease of trade to avoid settlement risk.