How I restructured a losing trade

Let me show you what I did with a trade that was going against me.

I had a put condor on SMH. I thought it was overbought up at 500. It proved me very wrong and kept going. By the time I looked properly, I'd lost about half the premium in that condor.

So here's what I did.

I sold the condor and entered a put fly instead. Closer to the money, a bit shorter-dated. That gives me real monetizability if SMH does finally have a leg down.

But the other reason is the one that matters more.

The original condor had become a long vol structure. It sat so far out of the money, and the vol had caught a bid. So I used that. I sold out into the little pop in vol and replaced it with a fly that's actually short vol.

Now I'm not bleeding as much time decay while I wait.

If I'd just held the original, the minute that pop in vol subsided I'd have lost the rest of it anyway. That structure was working against me on two fronts. Direction and decay.

So here's the lesson.

When a trade goes against you, cutting it is one option. Restructuring it into a better-built expression of the same view is another.

You still cap the loss near what you were always risking. But you give the money a better chance to work if the view eventually comes good.

Want to know more about how to read where vol and time sit, and how to rebuild a position when the first expression stops fitting. Then you only need 60 minutes, that's where you start putting the pieces together.

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