Question about clicking down to a lower strike price if the underlying RUT, SPY or OEX index starts to drop, and if we should close our existing credit spreads first

Question:  I’ve been watching the trades for a few months and would like to try one of my own now. I understand that you recommend when starting out to start small, with at least $1000 and preferably start with the RUT.  Say I sell the RUT Feb 680/690 bull put spread.   Am I done for the month until you say to sell the Bear Call Spread to complete the iron condor, or do I close out the existing 680/690 bull put spread before opening the next trade?

Answer:  You would open the recommended RUT bull put spread when it’s filling for between our recommended price range, let’s say between 48 and 95 cents credit, and then you would hold onto the spread through expiration.  You then would watch the underlying RUT index to make sure it stays above the short 690 put that you sold.   If the RUT starts to pull back and if it gets within 15 points of your short 690 put, you will need to start preparing to roll the spread either down into the same month, or out into the following month.  Right now it’s not necessary to worry about this scenario since there is a very low probability that this will happen.   If you are curious about rolling, please visit the Learning Center at http://www.monthlycashthruoptions.com/LearningCenter.htm  and you’ll see a bunch of case studies on how to do a roll.  In the case that we need to do a roll, we send out detailed instructions to our subscribers on what/when/how to do the roll.

 Question:   My confusion comes from where you say to click down a strike to keep your credit between 48 and 95 cents for people who are writing more than one spread.  At the point where it is necessary to click down to open another spread should I close the existing spread that I have and click down to sell again or just keep the original spread open?

Answer:   You would hold onto all of your existing spreads if you are forced to click down.   Let’s say you are holding the RUT Feb 680/690 bull put spread.   A week later the RUT starts to drop and the RUT Feb 680/690 bull put spread starts to fill for more than our recommended maximum price of 95 cents.  In this case you would click down to the RUT Feb 670/680 bull put spread.  You would also need to put this spread in a different account as the 680 strikes will overlap.  (we do our best to maintain 10 point spreads in our accounts when using the RUT as it provides flexibility when we open the top bear call spreads to complete the iron condors)   In parallel, we would be watching the original RUT Feb 680/690 bull put spread and will need to adjust it if the RUT pulls back too far.

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