Holding a debit put spread on HYG with a sep expiration date? Position was deep in the money but has been trending lower in the recent days. Sell now? Gradually? Or more pain to come for the HYG?

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Well hyg bounced this week and vix is down a bit. I would say cover your short strike up here or roll it to another strike. You can also consider closing your short strike and selling a calendar spread.

Right now i have been having a lot of success with debit spreads on weeklies. They lower the cost of entry and reduce risky due to the credit received from selling. If price moves against you, you gain value on the short which offsets downside on your long. Cover it for cheap and uncap the unlimited gains on the long put.

Mm... don’t have as much confidence on my bearish views beyond sep so don’t think I’ll be rolling it over. What underlying are you using with your debit spreads? Also, I might have misunderstood but a long put position does not have unlimited gains (I.e. the underlying can’t move beyond “0” gains ara capped at the difference between the strike price and “0”)

I am trading spy.
I meant uncapped not unlimited, being short an option while long set a cap on your potential gains. Also when I say roll, you can roll your short strike lower not the date.

Imo sep is a bit far out. If vix settles down and drops, your long strike will lose significant value even if it is itm. So actually best bet to keep same risk profile would be to roll your short strike down, this will increase your potential gains.

It really depends on what strategy you are employing. I dont really see this as a great trade. You basically paid a premium for extrinsic value, this is a sellers market with vix so high

It’s a sellers market for vol now, not when I put the position on (implied vol was much lower at the time). Again the position is in the money so it’s not like I’m paying implied vol at today’s market price My question was more on the timing of the unwinding of the position. Gotcha with SPY. My issue with options on SPY is that unless you really have an edge is just to hard to think that you can reasonably arrive at a range of likely outcomes (up or down) for where it could go, for it to be a good bet with decent risk reward. That is not the case with HYG. 10% of the index has exposure to oil. There are both supply and demand shocks given the price war and Corona. And a lot of that paper belongs to over levered companies that won’t be able to roll over their debt if this halt to the economy continues. Same is true for other sectors that issue paper that is captured by this index. Any other hedges out there for long stock exposure that might be cheap here with the recent rally? Looking for insurance like Payoffs (pay small amounts that have decent notional exposure that may or may not make multiple times the initial investment)

Well it seems like you have answered your own question and there is more downside to come. Literally everyone see more downside in the market dont get shook out on a bull trap. Again if that is the case take some profits and roll to an atm strike.

I hear you. I’m just trying to explore how I could be wrong in recognition of the latest bounce. I can’t get a read on the recent rally on HYG in the face of the latest unemployment claim data. Always wise to seek the opposite of ones own thesis

Also you long put has most likely increased in extrinsic due to the massive spike in iv.

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