With the market touching new highs and shrugging off all the threats that sent it down in January, it’s time to check in on some of the short delta positions we’ve placed and see whether there are any worthwhile adjustments to the existing structures:
Let’s first look at the Homebuilders etf, XHB. We initially bought a put naked in this, then on the selloff, we spread it, turning it into a fairly cheap put spread. Here was that action:
XHB ($30.80) long the XHB March 32/30 put spread for .35
Now it’s even cheaper at around 28c. We’ll need to make a decision on this position soon if the market doesn’t see any selling. The put spread will continue to decay as long as XHB is above its breakeven of $31.65. In hindsight, this should have been closed instead of spreading it, as it was about 1.20 in-the-money at that point. And when the market started rallying, we should have closed the spread at a profit. So now we’re looking for a market sell-off to get out for a profit.
CAT ($91.80) Long March 90 put for 1.70
This trade was profitable almost instantly and we even heard some of you say that you took it off for a nice gain. Since that initial success, the stock has been one way, up, until today. With the stock off its recent highs, these are worth about 30c and at a 10 delta will likely expire worthless. Rather than selling to close and locking in the loss we’ll leave them on, possibly adjust, and then hope for a market sell-off. The two adjustment options we are considering are to turn it into a fly by buying the 95/92 1×2 or rolling it into a higher strike put spread by doing the 95/90 1×2. The second would leave us with a 95/90 put spread for about 60c more than the initial naked put.
FDX ($132.16) Long March 130/120/110 Put Fly for 1.95
This stock has struggled to get above its 50 day moving average and with it down on the day today the stock is only a dollar higher than where we entered this structure. Decay has taken a toll on it however and with the stock at $133 the position is worth about $1.40. We need this down about another $5 to get to our breakeven point so we’ll have to keep an eye on it if it doesn’t break soon as the decay will start to become a killer over the next few weeks.
Long the WYNN ($223.90) March 207/185 put spread for $4.72 average
This stock broke to new highs, went parabolic and got away from us. With the stock at $235, this spread is basically worth about 30c and will most likely expire worthless. The stock could move fast to the downside, but unless some massive news hit, it won’t get to the $200 mark we need, so we’ll likely have to get as much money out of it as possible on the first string of red days. If not, we’ll just have to take the total loss as there’s not really any decent way to repair the trade.
CMG ($554) long Mar22nd 550/500 Put Spread for $12.25
The stock is only a few dollars higher than where we put this trade on but decay has taken its toll as it’s currently worth about 50% less than what we paid at just over $6. This structure is still close to at-the-money so it could change quickly to the downside, but we’ll have to keep a very tight leash on this if it starts to new highs as that 50% loss could quickly become 100%.
Trade: SPY ($181.89) Bought March 31st quarterly 180 / 170 Put Spread for 2.00
This structure has lost about half its value. If it’s serving as a portfolio hedge, that’s fine. As an outright trade the market needs to selloff back to its 50 day moving average (SPY 181.40) for this to start to be interesting. This expires at the end of the quarter so nothing needs to be done at the moment, but a failed breakout to new highs in the market needs to happen sooner rather than later for this to come back into play.
BRK.B ($114.37) long March / June 110 put calendar for $1.60
This is a a position that’s in decent shape as the stock is roughly where we initiated and the structure is about what we paid. The only adjustment we’d be likely to make on this is a possible roll of the march puts if they get dollar cheap.
IWM ($112.35) long March 112/107 Put for 1.35
This index is about $4 higher than where we initiated and the structure is down more than 50% at about .50. Again, we need the market to fail at these highs and the structure has a shot to get closer to even. Not much can be done as far as adjustments here.