After rolling our calendar spread, I am tracking a position that includes eight Oct 21 200 puts with an effective cost basis of 0.56 and eight Sep 23 199 puts shorted for (effectively) 0.20. In retrospect, I would have preferred rolling into a vertical put spread by shorting some Oct 21 195 puts for more than we paid for the 200-strike puts that we are long. When I initially offered a calendar spread to bet on a drop in the broad averages, I was not expecting SPY to fall quite as steeply as it has. No matter. The position is solidly profitable and would become even moreso if the broad averages continue lower.

At the risk of confusing less experienced traders (who were explicitly instructed NOT to attempt the trade), I’ll suggest modifying the position as implied above. In practice, this would entail short-selling eight October 21 195 puts and covering (i.e., buying back) the eight Sep 23 199 puts we are short for a net credit of 0.76 or better.  On Friday’s closing prices, you could have shorted the Oct 21 195s for 1.01 and covered the Sep 23 199 puts for 0.44, for a net credit of 0.57.  The result would be a $5 vertical bear spread with the potential to produce a $443 profit per spread and a loss no greater than $19 per spread.

Those are great odds, and you shouldn’t hesitate to take them if similar prices obtain on Monday when stocks opened. However, if SPY should open weak, the increase in premium obtained for shorting the Oct 21 195 puts would be more than the increase in the cost of covering the short Sep 23 199 puts. This would effectively give you the $5 vertical bear spread for a net credit, meaning no loss would be possible on the position. If the net credit is, say, 0.30, that would imply that the worst you could do would be to make $30 per spread at expiration, or $240 on the position; and the best, to make $530 per spread, for a $4240 total. The latter sum would be realized if SPY is trading 195 or lower when the spread expires on October 23.  I am depending on reports in the chat room to tell me how you’ve fared. This will enable me to continue to track the position so that it reflects the actual experience of subscribers rather than a purely hypothetical P&L. _______ UPDATE (September 12, 9:59 p.m.): The spread detailed above opened at 0.62. Did anyone fill the order?  Did anyone attempt it? If so, please let me know in the chat room so that I can establish tracking guidance if warranted. If you still hold the original spread — long 8 Oct 21 200 puts, short 8 Sep 23 199 puts — bid 0.05 to cover the short puts, day order, contingent on SPY trading 217.00 or lower.  _______ UPDATE (Sep 14, 6:35 p.m.): Subscribers reported legging into the spread at prices ranging from 0.55 to 1.10.  That’s a credit, mind you, and it implies that no loss is possible. Using the worst fill reported, 0.55, implies that the eight spreads we hold will produce a profit of at least $440 no matter what SPY does. However, come expiration day on October 21, it would generate an additional gain of $800 for each $1 drop below 200. Thus, if SPY is trading 195 or lower, the implied gain would be $4440.  At 198, the position would show a gain of $2040. I may decide to augment the position with some more vertical put spreads, not necessarily at the same strike, so stay tuned to the chat room and this tout for further guidance in real time. _______ UPDATE (Sep 15, 11:16 p.m.): A subscriber has now reported legging into the spread for a 0.37 credit. Because I generally use the worst fill reported, I am lowering the profitability range as follows: The eight spreads held in the tracking position (and presumably by subscribers who followed my guidance) stand to produce a total position gain of no less than $296, but as much as $4296, if SPY is trading 195 or lower at expiration. The position would still generate an additional gain of $800 for each $1 drop below 200.