A little lesson on avoiding PDT by using spreads – VXX example from today
Like a lot of you, my trading account has less than 25k in it and I’ve been burned at least 100 times by not taking profits by holding overnight to avoid getting restricted. So I wanted to share one of the strategies I use to lock in profits without making round trips.
So this morning, I bought to open 20 VXX 19.5 calls for 0.41 at 9:34am. I watched VXX for awhile and it started to creep up towards lunch time. To lock in some gains and effectively reduce my position size, I turned it into a debit spread by selling the 20.5 for 0.30. Now I’m risking $220 to possibly make $1780. Not bad!
So then VXX really starts flying and I wished I never turned it into a spread, but at least I’m still profiting as it moves up because my debit spread is gaining, just not as much as if I just had the 19.5s.
Near the end of the day, it looks like VXX might need a break and I’m up over $1k. I really don’t want to watch that profit disappear overnight so to more or less lock in profits, I sell the next spread higher – in this case, the 20/21 for 0.45. So this nets me $900 in premium.
As you can see in my closing p/l this move already paid off since VXX closed down from where I sold the 20/21 spread. https://imgur.com/a/lIZHc61/
Here’s a profit / loss break down… https://i.imgur.com/THCSPBI.jpg
Submitted November 12, 2020 at 10:52PM by Beer_man_man_man
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