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Follow Up To Last Week’s RUT Trade

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Last week, I posted a couple of trade ideas on RUT following it’s stellar run. A couple of people called me crazy for placing a bearish trade in a run away bull market. So far the trade has worked really well, and if you took the trade, I would be looking to take profits when the markets reopen on Tuesday.

The first trade I suggested was as follows:

Buy 3 June 20th 1030 Calls
Sell 15 June 20th 1040 Calls
Buy 12 June 20th 1060 Calls

The profit potential on the trade was $1,700 with $19,300 capital at risk. As of Friday’s close, the trade had made around $750 which is 44% of the potential and 3.89% on total capital at risk. With the long weekend, there might be some more Theta decay when we open on Tuesday and if we open down, that could further add to the profits. As we’re 1 week in to the trade, with 4 still to go, I would say “thank you very much” and take the profits on this one. With markets moving around a bit there is every chance we could rally back up over the next few weeks, so don’t look a gift horse in the mouth.

The other trade I suggested was this:

Buy 3 June 20th 1020 Calls
Sell 3 June 20th 1030 Calls
Sell 15 June 20th 1040 Calls
Buy 15 June 20th 1060 Calls

The trade had a similar potential profit and capital at risk, but had a larger profit zone on the upside. Again, I would be looking to take profits on this trade as it has made about $750 in 1 week, so there is no point waiting another 4 weeks to make the remaining $1,000 that is available. The risk / reward balance just isn’t the same as it was last week.

If you took either of these trades, I would love to hear from you in the comments below about what you thought and whether you will try this type of trade again in the future.

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2 Comments
  1. ARCHER says:

    BUY 12 OF THE JUNE 1060? YOU SAID YOU CORRECTED–15? COULD YOU PLEASE COMMENT ON UNBALANCED BWB? DAN SHERIDAN USES 1-4-3, AND
    SAYS MARGINS REQUIREMENTS ARE FRIENDLIER THAN THE REGULAR SKIP
    BWB? PLANNING TO BECOME MEMBER NEXT MONTH, AFTER COMMING FROM VAC.

    1. Hi Archer, yes I had a typo when I originally published that post. The second trade was long 3 debit spreads and short 15 credit spreads, so no naked options. I like the 1-4-3 but I also use 1-5-4 as well. Both trades have defined risk, so it should be easy to work out your margin requirements.

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