The Rally That Cost Something: Cutting a Strangle in Half at Record Highs

Week of Aug 3–Aug 9, 2026

The S&P 500 ran to record highs this week, and for most of the market that was the story. For this account it came with a cost: the call side of a 2-lot /ES short strangle got squeezed by the rally, and on Tuesday the position was deliberately cut to half for a -$393.44 realized loss, with one lot still open. Four SPX 0DTE credit spreads all closed green and clawed back +$156.36 of it. The week netted -$237.08 in realized trading, and it left the account roughly $500 off its recent peak. But the number isn’t really the point of this one. What happened to the strangle, and how it was handled, is.

The trade that defined the week

The position was a 2-lot /ES short strangle, opened July 31: short the Sep 14 8200 call and the Sep 14 5800 put, two contracts of each, sold for a combined 7.90 credit (about $781.56 after fees). A strangle like that wins when the index stays in a wide band between the two strikes. This week the index didn’t cooperate on the upside. The S&P 500 climbed 3.6% over the five sessions to a record high, and a rally that clean and that sustained is exactly what pressures the short call side of a strangle. The 5800 put was never in question; the melt-up toward the 8200 call was.

On Tuesday, August 4, with the position underwater and the tape still grinding higher, the call and put were bought back one lot of each at a 15.60 combined debit, closing half the strangle and realizing a $393.44 loss on that half. The other lot was left on. It’s still open as of this week’s data, showing an unrealized loss around $149, and it’s expected to close for a further small loss.

Here is the part worth sitting with, and it isn’t regret. The instinct in a losing trade during a rally that won’t quit is to close the whole thing and make the discomfort stop. That’s not what happened. The position was cut in half, deliberately, to take risk off the table and take some of the pressure down, while keeping a lot on in line with the original thesis. That is a managed loss, not a panicked one, and on an account whose earlier entries include a 1:00 AM forced exit made under exactly that kind of pressure, the difference is real progress, not a footnote.

What actually happened

Date	Action	Details
Mon Aug 3	SPX 0DTE put credit spread	7505/7480 x2, 0.30 credit, bought back at 0.05. +$41.68
Tue Aug 4	/ES strangle cut to half	Bought back 1 lot of the Sep 14 8200C / 5800P at a 15.60 debit against the 7.90 credit. -$393.44 realized; 1 lot still open
Wed Aug 5	SPX 0DTE call credit spread	7790/7820 x1, 0.40 credit, expired worthless. +$36.56
Thu Aug 6	SPX 0DTE put credit spread	7655/7635 x1, 0.40 credit, expired worthless. +$36.56
Fri Aug 7	SPX 0DTE put credit spread	7675/7650 x1, 0.45 credit, expired worthless. +$41.56

One small detail in that table is quietly telling: Wednesday’s SPX trade was a call credit spread, not the usual put spread. After two record-high days, the read was that the immediate upside was getting stretched, so the premium got sold above the market instead of below it. It expired worthless like the others. Separately, the JEPI position paid a small dividend this week, about $4.67, real passive income that sits outside the trading record but is part of how the account actually earns.

What moved the market this week?

This was one of the strongest weeks of the year for U.S. stocks. The S&P 500 rose about 3.6%, the Nasdaq roughly 5.2%, and the Dow around 3%, with the Dow crossing 54,000 and the S&P closing Friday at a record 7,757.64. The week opened with a Monday surge as oil fell after planned U.S. strikes on Iran were called off, easing inflation worries. It closed with a Friday jump on a much weaker-than-expected July jobs report: the economy lost about 23,000 jobs against forecasts near an 80,000 gain, with prior months revised lower. Weak labor data cooled fears of any near-term Fed rate increase and pushed rate-cut expectations back into focus, and the market read it as a green light.

For a short strangle carrying a call, that macro backdrop was the whole problem in one sentence: a broad, news-driven melt-up to record highs is precisely the environment a short call is most exposed to. There was no single bad headline to point at here, just a strong tape doing what a strong tape does, and the position paid for being on the wrong side of it.

The 0DTE side is starting to carry its weight

A year ago a week like this would have been a straight loss, the /ES side taking the hit with nothing to cushion it. That’s not the shape of the account anymore. The four SPX 0DTE credit spreads this week all closed green, and the +$156.36 they brought in offset a real chunk of the strangle loss. That’s the point worth flagging: the 0DTE strategy has matured from an experiment into something consistent enough to actively work against losses on the /ES side, in real time, in the same week. The July stretch that started as tuition has turned into a second, steadier income stream.

Takeaway

The honest read on this week is quiet pride, not regret. A real loss during a rally is one of the harder things to sit with as a premium seller, and this one got handled with discipline: cut in half on purpose, sized down, pressure reduced, thesis kept. The plan from here is to run the two strategies together on purpose, the longer-dated /ES strangles and the daily 0DTE SPX cycles, as two complementary income streams that don’t rise and fall together. This week was the first clear time the second one showed up to support the first. That’s not a setback to recover from. It’s the account working more like it’s supposed to, and getting a little better at it.

Frequently asked questions

How did this account do the week of August 3, 2026?

Down $237.08 in realized trading P&L. The loss came from one position: a 2-lot /ES short strangle whose call side got squeezed as the S&P ran to record highs, cut to half on Aug 4 for a -$393.44 realized loss with one lot still open. Offsetting part of that, all four SPX 0DTE credit spreads this week closed green for +$156.36 combined. A small JEPI dividend added $4.67 in passive income on top.

Why did the /ES strangle lose money during a market rally?

A short strangle sells both a call above the market and a put below it, and profits when the underlying stays between them. The S&P 500 rose 3.6% for the week to a record high, and that rally pushed up toward and against the short 8200 call side of the position. The put side was never the problem; the sustained move higher was, which is the specific risk a short call carries in a strong uptrend.

What does cutting a position in half mean, and why do it?

It means closing part of the position (here, one of the two lots of each leg) while leaving the rest open, rather than closing the whole thing at once. It reduces the risk and the emotional pressure of the trade without fully abandoning the original thesis. In this case it was a deliberate risk-management decision made while the position was under pressure, not a panic exit of the entire strangle.