Thursday, March 15, 2012

$RUT winning trade level pick

2/10: sold to open 1-wide Mar credit call spread 855/860. collected 1.45 premium. I did this 13x.
3/15: bought to close the same spread for $.04. Net profit is just under $1900.
Important note: this is an AM-settled issue (you can't trade it on expiration day. although 855 is far from current price, I didn't want to leave anything to chance.)

I chose 855/60 because it's a level that it has had several chances to break but failed (see chart below). Furthermore, I waited until momentum turned negative so I get accelerated premium erosion (good for the seller of the spread -me).
Contingency plan: had it reversed course and started back up to breach 855, I had options:
1) reset higher within the same period + more lots (ex: close 13x855/60 open 16x860/65 etc.)
2) punt out and up (close Mar13x855/60 open Apr13x870/75 or several other ways)
3) punt out and into an iron condor (allows for much further out of the money cr call spread but then will have a cr put spread too)
4) sprawl into an iron condor in the same period

$RUT is a fast runner so pick your levels carefully. Always leave room to adjust if necessary.