Search Options Trading Mastery:


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 ?

Click here to post comments

Join in and write your own page! It's easy to do. How? Simply click here to return to Add a Comment.

Join Us on Facebook

options trading pro system