Trade Review starring Lumber Liquidators

One of the important exercises that every trader should do is routinely review existing positions to see how they are playing out versus the original plan. There is always learning to do regardless of your experience or capabilities.

I will take a look at the existing trade in $LL to see how we are doing with it:

LL_tradeLet me break it down:

  • I am Long the December 100 Puts. Expiration is December 21
  • I am Short the January 95 Puts. Expiration is January 18
  • This trade cost $.50 per contract
  • This trade takes margin

Now let’s see how these 2 pieces are doing by looking in the appropriate Option chains for closing prices today:

  • December 100 Puts closed at $5.20
  • January 95 Puts closed at $4.50

So what are the potential exit scenarios now? Here are a few that I would choose from:

1) Do nothing, wait until December expiration to decide

2) If you believe the $95 level will hold then you could sell the December 100 Puts and keep that gain as cushion for the remaining short 95 Puts for January (cushion would give you room down just below the $90 level)

3) Close the trade for a very small gain here. Boo

4) Sell the December 95 Puts (closed at $2.60 today) & use the proceeds to buy back the short January 95 Puts. This would create a Long December 100/95 Put Spread – but would be for a debit. Ehh

5) Adjust the short January Put strike down to $90 (closed at $2.70 today). This would be done for a debit. Ehh

6) Spin-off to #2 above. Use proceeds to buy the January 90 Puts to create a short 95/90 Put Spread. So-so but better Risk management


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