SwatTeam
Sometimes I get into a situation where I really want to either eliminate a position, or eliminate it as a problem. In the real world scenario that we have coming up this Friday, I have a short put on SPY that I want to eliminate. Remember that a short put contract (Bullish) is an agreement that I would buy shares at the agreed upon Strike on the contract. In this case, the contract price is $772 on the SPY ETF. If I am assigned this contract, I would have to pay $77,200 to buy the 100 shares. Of course I could just roll it out like I normally do, but in this case, I have decided that I either want it eliminated by having SPY above $772 on Friday, or, allowing it to “Assign” forcing me to buy the 100 shares.
If that seems inevitable, I will find a way to sell them back to the market, even if it’s below $772. I would just want to get rid of them at that point and get the cash back.
Seems tedious right? The whole reason I want to do it is to eliminate the contract off the table, and thus reduce my overall obligations to the market. There’s a simpler way, just buy back the contract. In fact, if I did that, it’s in a profit position right now, and I would actually have a tiny profit if I did that. But where’s the fun in that?
Instead, I’ve invented all sorts of scenarios to be used as tools when I want to. This one we’re going to talk about today is called the SwatTeam. This is when I sell a few “SHORT CALLS” which are Short Biased positions against the position. I Want to do that because overall, on SPY, I am biased long. I want to correct that a little, because at this moment in time, I actually want to be short biased against the SPY index.
Check out the image below, I will explain more in the comments to follow.
There’s a whole lot going on in this image. The Purple $772P is the focus of the entire thing. I want to eliminate that position, but I want to have fun doing it. So, all week I have been manipulating my short call positions around my SlinkyMap so that they’re lined up like this against it.
Wednesday I have two short positions, $774C and $772C. My thinking is that with SPY closing the day on Tuesday at $768.84 it may not be likely that it passes those levels on Wednesday. And if it does, that most certainly sets up the elimination of the $772P soon.
On Thursday, I have 3 more short positions, $771C, $773 and $774C. If these end up ITM (In The Money) I will just roll them out to hedge against other future long positions, and keep focusing on Friday.
For this week, I have introduced to my interactive SlinkyMap a new character. PacMan is going to be part of the show for a while. I’ve setup PacMan to chew through the long biased positions because I want to trim them out of the portfolio. His mission is to eat up long biased positions, and help me get into an overall short position against SPY.
Take a look now at how things looked at the close on Wednesday Oct21.
It’s 4pm now, and the day is done. The $774 Short Call was rolled to Oct27$776C. Even though I raised the Strike target, the market gave me $229.33 just to roll the contract to a future date. The $772 Short Call was rolled to one day further, I chose Oct28$776 and the market paid me $270.67 in credit to take that position.
At this point, things are looking good to eliminate that $772P without even being assigned. The price of $773.08 you see in the orange box with a dotted line across the screen is the price that SPY ended the day at.
Tomorrow, Thursday, I will have two more short calls to process as we approach our target date. They’re both pretty close to the money, so it’s going to be one of those days where I have to be patient, and choose when and where to roll them to likely later in the day, like around 3pm eastern time. In all likelihood, the market will once again pay me a credit to shift them out to the next week, and I can choose a target I like to aim them at once I see how the price action plays out.
The GOAL is still to ensure the $772 Short Put can close the day expiring worthless, or close to it. The only way I would not eliminate this short put on Friday is if suddenly SPY goes on a rocket straight up, and in that case, I likely would keep the short put, and just shuttle it forward in time to keep my overall delta balanced.
Now, take a look at how Thursday ended the day.
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