With bears struggling to hold stocks down yesterday, we temporarily neutralized our short position just before stocks took off, selling two August 102 puts for 3.70 against six August 98 puts already held for an average 2.13.  This is a “backspread” position, and it will automatically make us longer if DIA goes up and shorter if DIA goes down. The tradeoff is that time decay will work against us, and that the position is a loser at expiration if the underlying vehicle is sitting near 98.  We have plenty of time to adjust, though, and the adjustment that will work best implies selling into strength and buying into weakness. For now, however, do nothing further. Wait till you see how much fun this can be if the Diamonds should turn violent! _______ UPDATE (2:48 p.m. EDT):  Short one more August 102 put for 3.10 or better. They are currently 3.10 bid with DIA trading 101.68. The resulting backspread — long six August 98 puts, short three August 102 puts — leaves us net short the equivalent of 24 shares, but we will automatically become long if DIA moves up just 20 or so cents from here. Our average cost per ratio spread is 76 cents (3.50 average per each August 102 versus 2.13 x 2 cost for the August 98s). This position will have to be worked to overcome the disadvantage of time decay and the prospect of a worst-case loss if the options expire with DIA trading around 98. One way to do this would be to short August 94 puts if DIA falls sometime in the next few weeks.  That would turn our vertical ratio spread into a butterfly yielding a profit, or at least no loss, over a wide price range. If DIA simply goes up, up, up, then our maximum loss would be what we paid for the spread, or $76 (x 3).  In practice it would not necessarily be that bad, however, since the August 98 puts are likely to hold premium (via increasing implied volatility of out-of-the-moneys) better than the August 102 puts that we are short.