Where we sit on this trade… it’s sitting at a slight profit, but short directional exposure is starting to get accumulated.
Sure the market is overbought but it can stay overbought and continue to frustrate us even further.
Here’s the catch-22 that we’ve got right now.
As I type this there are only 37 days left to expiration. Because February was a short month, the time is actually going by a little faster than I had expected.
Our plan currently is to roll the call side higher and add to risk. Here’s the problem that I currently see.
The cost of this roll is a little higher than I’d like. What I mean by that is the premium savailable on further OTM calls are lower because everyone and their mother is selling SPX call premium.
This drives the amount of premium lower as well as the strikes we can select.
Right now the suggested roll is to take the 2050/2060 call spread and move it higher to the 2080/2090 call spread. At current mid prices you’ll be able to do this with no increase in margin.
Yet, the roll of 30 points higher just *feels* too tight. That’s the concern I have right now.
It will also double the short exposure we have in the market. That means we haev to be willing to take some upside heat. I’m comfortable doing that at these price levels but it’s still a concern. I remember the rally in Oct 2015 that ran me over and that’s one of the biggest concerns I have right now. We may have to deploy a hedge by purchasing some May SPX calls to reduce delta if we do start to squeeze above 2030.
Those are my thoughts. I’ll structure the roll in a second.