Tuesday, February 22, 2011

2/22 Daily Summary

Lesson learned: While using a debit spread helps you if the market keeps going in the direction of the debit spread (in this case, going higher), it hurts really bad if we reverse quickly. In this trade, the debit spread took a double hit, one by vega and the second one by volatility. A single call would keep more value (about 3%), no major deal, just a lesson learned this month.

The trade took a hit as the market sunk during the day. I am very glad to report I didn't have to touch the position as the contingent orders took care of adjusting and protecting my capital. The Debit spread was sold on my first order and the position is still in play with a small P/L slippage given the huge jump in volatility. Should we continue my game plan is to hedge, cut and roll the vertical put spreads and add another smaller butterfly. Mainly stay in the game, on the positive side, there is time to recover the trade.