I’m not going to lie, income trades have *sucked* in this tape. That’s obvious of course as seen by the swings in the unrealized p/l in the trade.
It seems I’m going to have to dance for my money this quarter.
Here’s what we’re going to do… this trade only has the short put side on, and the intent was to sell those 2130/2140 call spreads at 1.60.
Well we’re not going to get that price. Even if the SPX pops, the IV will drop, so we’re going to have to go with lowe prices:
Sell to Open SPX Oct 2130/2140 Call Spread @1.00
This is still *half size*. We’re doing that so if the SPX does manage to rip back to 2100 we will be able to roll and add the trade.
This helps improve the credit, but it still doesn’t remove a significant amount of downside risk.
Here’s the tricky part… there’s no *easy* way to cut the downside risk cheaply.
Here’s the hedge I’m going to use:
Buy Oct 1850/1830 Put 1×2 @20.00
So this trade you’re selling the 1850 put and buying 2x the 1830 put. It cuts my delta from 27 down to 10, which is more manageable.
If you’re trading less size, then the equivalent hedge in SPY is the Oct 185/183 1×2… you could also consider just buying some Nov SPY puts straight up. Just find a way to cut your delta by 50-60%.
This hedge is going to be on for only 10 trading days. If things “clear up” then we’ll take the hedge off.
The problem with this hedge is if the skew flattens or the vix drops hard it stops being an effective hedge. I think that could be a risk but not in the near term.
If the market tanks again we’ll take off the hedge and use those profits to roll the put side lower.
