I sold my bear put spread in ROP for a loss.
music selection: “In Metal” — Primal Fear
On 15MAR2021, I opened a bear put spread with 16APR2021 expiry in ROP at the 410/420 strikes. I got 8.87 pricing on five spreads, putting 4,435 in capital at risk. I had about five percent downside protection but the price action has been very strong. This morning, the price moved past the 420 strike putting the entire spread out of the money, indicating a 100% loss if held to expiry.
I decided to preserve as much capital as possible by selling and recovering some time value. I got 3.40 pricing, recovering 1,700 dollars. I booked a loss of 2,735 over 23 days. Thus, 61.7% of the capital I deployed was lost.
It makes me wince a little every time I have to book a loss. This is part of the process though. You have to put yourself in a position to win many times so you can win more than you lose. There are some what I would call “less than ethical” options bloggers out there that only report their winning trades and just don’t disclose their losses. I feel like transparency into losing trades is essential to the teaching process for newbies that are learning how to trade on their own book.
I have one more position that is currently threatened for the 16APR2021 expiry. Currently, it is priced to provide a positive return. I need another 19 cents in upward price movement to earn the full profit and I’m going to hold and take my chances. I also have a June expiring bull call spread that has moved deep in the money. I intend to close that early when there is less than a penny a day to be earned by continuing to hold.
Devour your prey raptors!