Before I closed my October AAPL put spread for a loss, I wondered if I should let it run longer to get a bounce.  Instead, I cut my risk and locked in a loss of $787.29 while the underlying stock was trading at $637.37.  Apple did fall as low as $623.21 intraday, below my $625 strike, but recovered quickly.  It fell below $625 one more time intraday before recovering and still hasn’t closed below $625.  If I had stayed in the position, I’d have a difference of nearly $1,000 when the options expire in a few days, assuming it doesn’t drop $20 again over the next two days.

It’s similar to my IWM call spread I closed early.  IWM almost reached my short strike intraday and then fell hard.  It’s around $3.50 below the short strike now, but I am no longer in the position.  That’s another $1,000 difference that didn’t go my way because I exited early.  I’m chalking these losses up to learning this type of trade.  Had I been paper trading, I might have let the positions run, but trading with real money is the best “teacher” for me since the emotional side isn’t left out.  That’s not to say I let emotions guide my trades on these, but I have to believe they played a roll in how I set my stop loss targets.

I’m adjusting my plans for future option spreads with respect to when I cut losses.  My new plan is to wait for the underlying stock or ETF to close below my short strike for at least one day, maybe two.  My losses will be bigger when I’m wrong, but I should have fewer losses.  I expect the difference to fall in my favor.  The strikes I use tend to be where I think support should be, so a very short bump against the area should not trigger a close.

With all of that in mind, I moved my focus back to AAPL, not that it ever really left.  I have been waiting for the right time to get in and saw $650 as resistance.  It broke above that today, but didn’t hold.  I didn’t stay patient too long and while AAPL was trading at $648.80, I sold 10 AAPL November $560 puts for $3.762 and bought 20 AAPL November $555 puts for $3.342.  I received $410.65 after paying $9.35 in commissions on the $0.42 spread.  Even though AAPL closed a few bucks below my trade price, the spread bid/ask looks like it stayed within a penny of my trade.

Since my trade, AAPL has moved back and forth between $645-650, but is hanging above its 10 day moving average (dma) still.  I won’t be shocked to see it retest the $625 area (around the 100 dma), but don’t think there is much of a chance that it’ll fall below $580 (around the 200 dma).  My short strike is just a little more than 20% below the intraday high for AAPL reached in September.  Being more patient and setting a higher limit order might have meant that I didn’t get the trade in, especially if AAPL remains above its 10 dma.

Breakdown:

  • Potential profit: $410.65
  • Money at risk: $4,589.35
  • Potential put spread return: 8.95%, 8.4% per month, 101.15% annualized
  • Downside cushion: 13.75%, 21.22% below the September high of 705.07
  • Short put delta: 0.1055
  • Timing remaining before expiration at time of trade: 4.6 weeks
  • Position close goal/limit: I’m aiming for full profit and plan to let the position run all of the way down to $560.00, per my comments above

I had an order in to close my AXP short call, but it didn’t hit.  That worked out for me since I see after hours that they missed on revenue and the stock is down a little in after hours.  It looks like my AXP October iron condor is safe to finish worthless as I planned.  I’ll see how the stock moves tomorrow and might open a new iron condor on it.