A couple weeks ago I bought a bearish 'poor man's covered put' on IWM :
Long the 177 put in Dec, and short the 164 in Aug for a net debt of 8.45
Breakeven @ expiry $170
approx: -40 delta, 1.44 theta
Max Loss : 845
Max Profit : 455
8.45 debt to 13 wide for ratio of 65%.
Profit Target:
I'd look to close for profit early with a +20-25% profit target selling around $10 to 10.55.
Notes:
My bearish bias is based on the small cap index forward PE valuation was highest of the indexes at over 26.
Technically it was appearing to 'double top'.
A week later a concern was the bullish cup and handle pattern forming.
However this week shows some rotation out of small caps into large caps.
Charting the 'geometry' of the trade is interesting. Visually it quickly becomes apparent how distant the max profit target it out of reach, and only moves into range closer towards expiry.
While the breakeven line improves slightly as time progresses it is the profit target line which I find most interesting.
Not only does it obviously improve towards expiry but the 20% target aligns accurately with the previous 3 low points in the IWM price trend going back to May.
If the market continues to remain strong in the coming weeks I may consider closing the trade earlier on a fast pullback for a slightly lower profit.
And if the trade hasn't closed for profit nearing the Sep expiry, I may also choose to roll the short Sep 164 Put ahead into Oct cycle.
Long the 177 put in Dec, and short the 164 in Aug for a net debt of 8.45
Breakeven @ expiry $170
approx: -40 delta, 1.44 theta
Max Loss : 845
Max Profit : 455
8.45 debt to 13 wide for ratio of 65%.
Profit Target:
I'd look to close for profit early with a +20-25% profit target selling around $10 to 10.55.
Notes:
My bearish bias is based on the small cap index forward PE valuation was highest of the indexes at over 26.
Technically it was appearing to 'double top'.
A week later a concern was the bullish cup and handle pattern forming.
However this week shows some rotation out of small caps into large caps.
Charting the 'geometry' of the trade is interesting. Visually it quickly becomes apparent how distant the max profit target it out of reach, and only moves into range closer towards expiry.
While the breakeven line improves slightly as time progresses it is the profit target line which I find most interesting.
Not only does it obviously improve towards expiry but the 20% target aligns accurately with the previous 3 low points in the IWM price trend going back to May.
If the market continues to remain strong in the coming weeks I may consider closing the trade earlier on a fast pullback for a slightly lower profit.
And if the trade hasn't closed for profit nearing the Sep expiry, I may also choose to roll the short Sep 164 Put ahead into Oct cycle.
Trade active
There were a couple days in Aug when the trade came within pennies of closing for 20% ROC ... I should have worked my ask lower until it filled and I closed early fo a decent ROC. At this time the position is a loser and I'll be looking this week to roll the short call up and out to OCT, as there's <20 DTE in the Sep cycle.
Trade active
SOLD -1 DIAGONAL IWM 100 19 OCT 18/21 SEP 18 166/164 PUT @1.35.38 debt for Sep 164, 1.73 credit for Oct 166, less $5 roll fee
Trade closed: target reached
SOLD -1 DIAGONAL IWM 100 21 DEC 18/19 OCT 18 177/166 PUT @10.50 IWM now 7% off highs!
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.