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The short exposure we've had in the SPY has kept us sane enough and well hedged so that we could pick up breakout longs with confidence.
Because we are coming into expiration we need to adjust them so we can keep similar exposure going into next opex cycle.
We've got 2 separate hedges. The first is 5 Nov 122/124 bear call spreads. The second is 5 Nov 126/128 bear call spreads. Both are at a drawdown right now.
We are going to execute modification of a vert-cal stairstep. We are going to convert these trades from verticals to diagonals.
First up:
This will convert our bear call spread to a Nov/Dec Diagonal.
This will convert the other bear call spread to a Nov/Dec Calendar
These adjustments commit additional capital, but cut our deltas significantly so we don't get hit by a squeeze. It introduces some downside risk under SPY 120. We also will be in a nice pocket of positive theta which will help to repair the trades even further. In other words, this trade will make our hedges get back closer to profit, but a much less profit.
Here's our new risk profile:
