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Tales of a Technician: Managing Losing Bull Put Spreads

September 7, 2022

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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

  1. Technique #1: Roll to an iron condor by adding a bear call
    1. Timing: Use a break of support.
    2. 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.
    3. 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
  2. Technique #2: Roll further OTM (roll down or roll down & out)
    1. Timing: Use a break of support or hitting my short strike.
  3. Technique #3: Exit and take the loss.
    1. pro: eliminate risk of any more loss.
    2. 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

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