With my current hedge expiring on Friday I’ve placed a new hedge that will expire 1 week later on October 18. I am using SPXPM Options expiring on October 18 (and cash settled at the Friday closing price of the SPX) rather than using regular SPX options that expire on October 17. The reason for this is that SPX Options cannot be traded after October 16 and have “overnight risk” since the settlement price is based on the opening prices of individual stocks in the S&P 500 (on Oct 17) and so does not correspond to either the Thursday closing price of the SPX or even the Friday opening price of the SPX (since not all 500 stocks trade on the open – some might take an hour or so after the open before the first trade).
I’ve opened a Risk Reversal position (buying a Vertical Put Spread, partially financed by the sale of a Vertical Call Spread) for a $500 debit:
The position has a maximum profit of $4,500 with SPX closing below 1940 at expiration. Maximum risk is $5, 500 with SPX closing above 1990. Depending on price action and volatility I may hedge this off to reduce my risk if SPX falls.
Position Update October 10:
With SPX falling I have hedged off my Portfolio hedge and sold 2 x 1900/1910/1970/1980/ Put Condor Spreads to generate $500 that covers the cost of my opening trade. I now have no risk below ~1985 and a maximum risk of $3,000 with SPX above 1990 at expiration on October 18 (next Friday). Maximum profit is $5,000 with SPX closing between 1910 and 1940. Profit drops to $3,000 with SPX below 1900 (psychological support level). Potential support at the 195 EMA (~200 SMA) is around 1905.
The current Profit/Loss graph is illustrated below:
October 14 adjustment – bought back the 1900/1910 Vertical Put Spread for $5.00/contract ($1,000 total – 2 x 5 x 100).