Changed SSO Position

I’m still expecting support to hold for the next few weeks on the S&P 500 at 741 after testing that level again on Monday.  I rethought my position though.  I originally paid $432.24 for my SSO March 19 long calls.  The issue with that trade was that SSO needed to be above $19 to retain any of the option value and above $20.50 to make a profit.  The most I could lose was $432.24, but I figured my exit strategy was going to cap me with a profit of no more than $300.00.  I also failed to factor in the reduction in price of the call option due to the VIX dropping as the markets turned back up.  All together I’m happy to be out of the long call option position although I wouldn’t be surprised to see SSO back up towards $21.50-$22.00 before February expiration.

This morning I decided to get out while I had a few dollars profit and redo the order with a different approach.  I put in a limit order to close the position, but the S&P 500 fell before it hit.  I let the order stand and while SSO resumed its climb and was trading at $18.78 I sold to close three SSO March 19 calls (SOJCS) for $1.50 each and received $437.72 with commission.  I could’ve done better a few minutes later, but would’ve done worse if I had waited until the end of the day.

Once I got the trade alert text message on my phone I went back in and started checking what I could do to try my new strategy of selling a credit put spread instead.  By then, SSO was up above $19 and was climbing still.  I tried a limit order for a net credit spread for March 19 and March 18 strikes for a $0.50 net credit and it didn’t hit so I lowered my limit order to $0.45 and waited.  50 minutes later, just before the market closed for the day while SSO was trading at $18.83 on its way down even lower five minutes later I sold seven March 19 SSO puts (SOJOS) for $1.65 and bought seven March 18 SSO puts (SOJOR) for $1.20 each.  The short puts brought in $1,139.75 and the long puts cost me $845.25.  That gives me a maximum profit of $294.50 if it goes my way and a maximum loss of around $405 with commissions.  By creating the credit put spread my break even point is under $18.60.  That’s a more comfortable position to be in with close to the same profit/loss amounts on the table.  I don’t expect SSO to stay between $18.00-19.00 for long and think it’ll move to the upside again before moving much more to the downside.

I’m considering a similar credit put spread on XLB too after my February naked puts closed out of the money.  I’m not as confident this month to write naked options again, yet.  As volatile as this market is each day, I have to recommend only using limit orders and letting them sit as long as you can stomach it before changing them.  It’s bound to bounce around enough to hit within a couple of days.  Check out the price action on MON.  It’s been all over the place.  A limit order for some far out of the money options on it could hit any hour at a much higher than expected price.  I’m considering a new naked put on it and a new covered call too.