SPY Bull Put Expiration and Insurance Purchases

Around July 8, SPY fell below $205, threatening the short strike of $202. Along with the threats for the XLE bull put spreads in the portfolio, I decided to purchase some insurance to mitigate some risks. I analyzed the SPY chart and felt there might be a short term descending triangle pattern as shown below. Thus I bought 2 SPY Aug21 $198 put for $2.74 triggered at SPY below $205.06.

I used a spreadsheet to calculate my entry, stop and target points, as well as the reward to risk ration as shown below. In the end, this pattern failed and I sold the put at $1.2 after SPY gapped up on July 13. The insurance loss was $174 x 2 = $348. Thus the July SPY position had a minor loss $12 (=348 - 6 x 56) after SPY puts expired worthless yesterday.

Short Stock	Price
ATR	2.19
Swing low/Breakout	205.28
Resistance	208.02
Trade Trigger - Below prior day low by 10% ATR	205.061
Entry limit order - Buy stop limit at 10% ATR below trigger	204.842
Initial Stop - Sell stop market is higher value of (1) 0.1 ATR above resistance, (2) Trigger price + ATR	208.239
Price to set break-even stop - equal Entry limit - (Initial Stop -Buy stop limit) - Drop new BE stop after a new swing high of 5 days+ is made	201.445
Target - Lower horizontal support - Range % within down trend line in last 5 weeks - Sell half & Trailing another half at 0.1 ATR above prior swing high or break-even - Sell last half at new target based on new pattern or larger time pattern (whichever is closer)	198.5263
Reward/Risk ratio - Must be greater than 2	1.8592028

In the meantime, the XLE was also moving against my position after my adjustment last time. Since I have a larger position on XLE, I felt safer to insure for this position in order to reduce risk. It looked to me that USO was falling faster than XLE. So I decided to use USO put for the insurance to trade its low base break down pattern. My order was triggered on Friday as USO fell below $16.97. I bought 4 USO Aug21 $18 puts for $1.36. I plan to sell the puts if USO rises above $17.97 by setting a GTC conditional order for stop loss. My other trade management rules are shown in the table below. If XLE continues to show weakness, I might have to add more insurance to limit overall risks. Due to the high level of risked capital for XLE, I’m withholding any new entries in case I need additional capital for another round of adjustment.

Short Stock	Price
ATR	0.58
Swing low/Breakout	17.03
Resistance	17.91
Trade Trigger - Below prior day low by 10% ATR	16.972
Entry limit order - Buy stop limit at 10% ATR below trigger	16.914
Initial Stop - Sell stop market is higher value of (1) 0.1 ATR above resistance, (2) Trigger price + ATR	17.968
Price to set break-even stop - equal Entry limit - (Initial Stop -Buy stop limit) - Drop new BE stop after a new swing high of 5 days+ is made	15.86
Target - Lower horizontal support - Range % within down trend line in last 5 weeks - Sell half & Trailing another half at 0.1 ATR above prior swing high or break-even - Sell last half at new target based on new pattern or larger time pattern (whichever is closer)	14.08381
Reward/Risk ratio - Must be greater than 2	2.6851898

XLE spread rolled out to August $70/66p

The Delta of the my short XLE put strike July$76 fluctuated around 0.65 in the last couple of days as XLE was around $75 with about 16 DTE. I had placed the adjustment orders to close the existing position and sell Aug$70.5/66.5p for a credit of about $44 yesterday. But they were not filled.

Today, the Delta seemed to break down 0.65 level (which was my adjustment level) firmly as XLE traded near $74.4.  Today, I found the IV for XLE actually dropped a bit even though XLE fell hard. Though this was not desirable for premium sellers, I still sold 41 contracts of Aug$70/66p vertical put spread which has 51 DTE with a credit of $0.43. The return was 10% which met my target. I did not sell the normal $5 width, because the Aug$65p had relatively wider bid/ask spread and the associated return would be under 10% target (credit of $0.48).

As I was waiting for my August vertical spread to be filled, I could see that the value of the closing July spread order was increasing faster than that of the August vertical. This was due the Gamma of the July vertical was larger. In the end, my August order was filled first and my July closing order was filled 30 minutes later with a debit of $1.73 as XLE prices pulled up.

To determine the adjustment size, I used my spreadsheet. Basically I rolled out the July spread to August which gave me much more time to receive the desired profit. Again, the closing target is 50% of maximal potential profit of the spread which was described in a previous post. I had not bought any put as insurance at the moment. The rest of the portfolio (SPY) was behaving OK today. I intentionally hold off opening other positions to reduce the capital consumption as the adjustment used a lot of buying power.