Adjusting the Riverbed Trade

Another disappointment from Riverbed Technology (RVBD) and another bounce from the $14 level. The stock delivered the worst-case scenario I had laid out. Of course, it could have been worse. Just because there is a model doesn't mean a stock's action will adhere to it. Ironically, this one is playing out about the same as Cirrus Logic (CRUS). Because of these similarities, I am going to step in and make an adjustment on the RVBD put combination trade from yesterday.

Coming into the morning, I was long the September $15 put, short 2x August $15 puts and long 1x August $14 put. I am making an adjustment on the September $15 put and August $14 put positions. I am going to buy a long 1x September $16 put, short 2x September $15 puts and long 1x August $14 put for about a nickel. This will adjust my position to a long 1x September $16 put, short 3x August $15 puts, long 2x August $14 puts for a cost around $0.05 now. This doesn't change my maximum risk much before the August expiration. My worst case is about $1.05 rather than $1 now. I have decreased my maximum upside by a little less than half, but this was never a trade where I anticipated being able to make a maximum upside. My goal is to bring in somewhere between $0.25 and $0.75 profit. By pushing the September up one strike, I allow room for RVBD to bounce. I would likely profit a bit more keeping the $15 puts if RVBD closed August expiration closer to $15, but I should do better if RVBD comes into August expiration at $15.40 or above, even all the way up to the $16.50 level. This adjustment is all about increasing the probability of making a profit on the trade....177 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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