On Christmas day, just three short days ago, I wrote about the great problem of having the market skyrocket up in one direction to make a position completely profitable.
Over the last three days, the RUT has dropped about 20 points or so thereby removing any possibility of buying myself out of the 670/660 vertical spread today for ~$0.10.
However, I’m not worried about it one bit. If you read the article on Christmas day and looked over the criteria I am using to make the decision, you should understand why. Even though the the RUT has dropped to right around 770 today, I still have a 100 point cushion on the trade. Furthermore, if I pull up my trusty tools from thinkorswim, the calculated probability of the RUT expiring below 670 on Jan 21, 2008 is about 1.5% today. Top top it all off, I originally entered the position when the RUT was at 750!
What does that mean? Well, first off all it means that I’m in a fairly safe trade. Secondly, it means that unless I really need the margin dollars, I’m buying the position back for quite a bit more than the risk associated with the position. With the RUT this far away from my strike prices, it is important to me to look at the percentages. And finally, I don’t think that the recent world events changed the market dynamics enough to cause panic, yet.
We’ll see over the next few weeks how it all plays out. I have the position open in my papermoney and personal account.
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