Selling has increased heading into the final half-hour of trading, and this position is approaching our 25% loss-level risk-management threshold. In keeping with our intraday adjustment rule, we’re rolling half of our remaining contracts at 112 down to 102, as follows:
Day limit order
Buy to close 1 SPY July 112 put
Sell to close 1 SPY August 112 put
Buy to open 1 SPY August 102 put
Sell to open 1 SPY July 102 put
for a net debit of $0.89 or better.
Note, again, that the 1 contract specified above represents half of our remaining contracts at 112 (one-fourth of our original position).
Analysis: With this adjustment we’re reducing our base-position delta by a little over 43%—right in the middle of our normal target range. As a percentage of total capital at risk, we’re slicing off about 95%…but that’s more than okay considering we’re at our loss-limit risk-management threshold.
We’re moving our lower breakeven down more than three points and bringing probability of profit back in line, without any increase in portfolio vega. The trick to any adjustment strategy is balancing the risk of the trend continuing versus the risk of a sharp reversal—which is exactly what we’re accomplishing by reducing our delta exposure while keeping a positive delta bias and using vega-neutral adjustments.
This position now consists of a center-weighted triple-calendar that still has plenty of profit potential, as shown below:
In lieu of a Weekly Portfolio Update (the above position is our current portfolio, after all), I’ll conclude by noting that we’re still not out of the woods, even though in the context of our portfolio-level strategy we’re better off than the buy-and-hold crowd. Including slippage from this trade, our unrealized loss is about 24.8% of our original position allocation and about 19.2% of our new total capital at risk. Our Model Portfolio loss stands at just over 6%, compared to a 6.7% loss for SPY since June expiration.
The fact remains, however, that our current loss level keeps us on adjustment alert tomorrow if there’s another move to the downside—even if SPY doesn’t reach our price-level adjustment point of $102. Similarly, our WMT Supplemental Trade portfolio is still under pressure; if the stock falls below about $48.25, an intraday adjustment is a distinct possibility.
Look for another update by 9:00am edt.