Repairing a Bear Put Spread
by Max Pavan
I would like your professional opinion on a trade I have in place right now Stock Nike Symbol NKE
On Feb.15 / 2012
NKE price $ 107.50
Bought 10 put April 2012 strike 100 for $ 1.78
Since than the stock as rallied to $ 109.24 today.
As I still believe NKE to be overbought,I would like to Manage my trade instead of just closing it out at a loss.
How about a rolling up strategy?
Sell 20 puts April 2012 strike 100 for $ 1.06 (credit $ 2120 )
Buy 10 puts April 2012 strike 105 for $ 2.12. ( debit $ 2120 )
Now what I have is a Bear Spread.
I have still the same amount of money in the trade but I have raised my break even point by 5 points.
By only owning the put April 2012 -100 strike my break even point is:
100 - 1.78 = 98.22
With the Bear Spread in place even tough my profit is capped, my break even point has risen significantly.
105 - 1.78 = 103.22
If I am able to structure this strategy at this costs ,it will not impact my outflow of capital , but also offers a much better chance of breaking even and also reduces the possibility of having to realize the maximum loss in the position.
I would really appreciate your opinion as an expert.Also if you would approach the trade in a different manner every suggestion is much appreciated.
I am somewhat new to the option market and trying to minimize risk is part of my trading strategy.
Today Nike is at $110.53 ,would you consider rolling up again ?