top of page

ITM Short Put Management

Updated: Feb 1, 2022

The market is rebounding slightly and offering opportunities to adjust trades. Today (1Feb) I managed some ITM short puts with an aggressive roll in IWM to take advantage. This trade was completely wrong directionally. I sustained a ~14% move against me and was still able to adjust the position and increase my probability of exiting for a profit.


For a more in depth video recap: https://youtu.be/Mya8XAdjhCo


IWM trading around $218: On 6Jan - I STO (5) 18Feb 210P @ 4.00. See chart below:

IWM ran below my short strike for most of the trade (and still is). With the last few days of market rebound, I opted to roll the position, for a few reasons:

  • I had around $1.15 in time value left in the options. I at times will wait a bit longer to minimize how much theta I'm buying back.

  • In this case, the 210s were far ITM (around a 0.76 delta even after the rally), the probability of these moving OTM is low. A quick look at the probabilities confirms this, around a 25% chance of being above 210 by 18Feb.

  • I opted to use this as an opportunity to roll my SP while adding some risk. I add risk very carefully, especially in markets like these. However, I've been planning to increase exposure in IWM regardless and have been holding off because I knew I'd need to adjust this trade.

  • I opted to gain exposure in the 4Mar 195P @ 3.94, doubling the trade size to gain the desired exposure and maintain a credit.

  • At this point in time, I'm still around 30% scaled into the trade allocation, plenty of room to expand in. (This allocation includes all current open IWM positions, not just this individual trade).

Trade Summary:

-T1 6Jan: STO (5) 18Feb 210P @ 4.00 | $2,000 Net Credit

-T2 1Feb: BTC @ 9.50 | $-4,750 debit

Realized Net Loss = $-2,750

-T3 1Feb: STO (10) 4Mar 195P @ $3.94 | $3,940 Net Credit

Unrealized Net PnL = $1,190


Trade Management:

-First profit taking opportunity is when the new position is trading around $1.19. This is the breakeven point on the trade. I do not intend to exit here, but this is the first profit stop that I will analyze. I will target something closer to <$0.25 (depending on DTE).

-Loss management will first occur when K=S. Depending on what that looks like I'll either look to roll, or wait. Much like I did on this one. The initial trade fell ITM 6 days in and remained ITM until I managed today. Waiting can be a powerful tool.

-I will continue to monitor this position against the rest of my IWM CS allocation (I have another 6 strikes covered at the moment). I intend to continue scaling into IWM but as I did with this one, I will likely wait to add more exposure based on how my existing positions look.


I was completely wrong directionally, I will still turn the trade to a profit. That's why I like options.


6 views0 comments

Recent Posts

See All

Don’t Trade

If you don’t have a written plan. The goal of this post is to share personal mistakes in my early trading to hopefully encourage others down a different path. People tend to hate those kind of stateme

Path to Options Proficiency

For the new traders, whatever you do, do NOT allow the disenfranchised internet trolls dissuade you from learning and asking questions. The goal of this post is to encourage new traders to stay the pa

Options Trading for Wealth Development

Like most, I started trading to create wealth and change the trajectory of my life. I started in 2007 with options and learned a really important lesson - consistency is far more important than huge r

Comments


Post: Blog2_Post
bottom of page