How do you manage a losing bull put spread? Today’s video explores where to place the stop loss and two adjustment techniques: rolling to a condor and rolling down or down & out.
Notes
Tyler, when managing a bull put spread. I’m seeing a few strategies that are interesting. The first one, if you are at breakeven, to add on to turn it into a condor, Second is to roll and third just to get out at break even or short strike.
Is one any more profitable than the other? Major benefit of one over other?
Trader
If I’m going to ADJUST my bull put (i.e. roll OTM or hedge), the question is whether the RISK is worth the REWARD.
Trade Management Techniques
- Technique #1: Roll to an iron condor by adding a bear call
- Timing: Use a break of support.
- Pro: Reduce the delta of the position. Increase the theta of the position. Increase the potential ROI b/c the bear call is a FREE TRADE.
- Con: Shrinks the profit range. You can lose if the stock goes up too much. You turned your bull trade into a neutral trade. You added a ceiling
- Technique #2: Roll further OTM (roll down or roll down & out)
- Timing: Use a break of support or hitting my short strike.
- Technique #3: Exit and take the loss.
- pro: eliminate risk of any more loss.
- con: no shot at redemption. Can’t recoup any losses.
Case Study: SPY @ $391
Sell Oct $360/$355 bull put for 80 cents. Max Loss $4.20
- Add an Oct $410/$415 bear call for 50 cents. Total credit rises from 80 cents to $1.30. Max loss shrinks from $4.20 to $3.70
- Exit at $360 (short strike): Estimated loss is $1.36
Read more Tales of a Technician [FREE Content]
Financial freedom is a journey
Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.
Legal Disclaimer
Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.
All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.
