Update: This JNK short put trade was bought back at 10am on the open on Thursday Sept 22nd for 1.3 – giving a 0.3 cent loss (or 30% on invested capital). The trade was executed 30mins after the market open, when option spreads came in a bit after the initial volatility. Even though the short put position was established when volatility was “high” it has gone “higher” and the risk of a waterfall decline in October appears to have increased, so the decision was made to buy these positions back. This maybe the “wrong” decision with hindsight if the market rallies back next week, but we will live to fight another day. We are not comfortable being short (cash backed) puts in this market – it seems we are fighting the tape.
Incidentally – we also took off most other short put option positions in other parts of the portfolio for similar reasons.