With SPX currently at $2393, about 12 points from the all time highs, I am looking at a Call Credit Spread. I am looking at a 24 day trade in the June 16 expiration. Sell 1 2430 Call and Buy 1 2440 Call for an $1.90 Credit. Just filled this trade live at 11:35 am central time with SPX at 2393. The Delta of the short call is 20, that means there is only a 20% probability that SPX will finish over the short strike of 2430 in 24 Days. The margin or risk on this trade is $810. I am looking at making around 10% or around $80 on my risk capital of $810 for every 1 contract. I will have an order in to buy back the credit spread at $1.10 Debit as a profit target. If SPX continues up, I will have an order in to buy back the spread at 2 times my profit target of $80. So I will buy the credit spread back for a loss if the credit goes from the initial $1.90 credit to $1.90 plus $1.60 or $3.50. Always have a Plan before you start each trade! The position Greeks […]
About Dan Sheridan
Dan Sheridan traded in the pits of the CBOE for over twenty years and is still a weekly educator at the Options Institute in Chicago. He opened Sheridan Options Mentoring in 2007, and has since educated thousands of retail traders by relying on the methodologies and strategies that were crafted by current market makers.
Entries by Dan Sheridan
AAPL is at $155 today. The at-the-money 31 Day Call in the June 16 Expiration is trading at $3.30 with an Implied Volatility of 17.41. What is Implied Volatility ? In the above example, the market price is $3.30. The 17.41 Implied Volatility is the input you put in the Options Pricing pricing model that spits out the market price of $3.30. If I put in 15 into my pricing model, it might spit out a price of $2.00. That wouldn’t be the Implied Volatility. Remember, Implied Volatility is the input you put in the pricing model that equals the current market price. How can knowing Implied Volatility help me? Now that I have the implied volatility number as a metric of the current option price, if I can compare the number to Historical numbers , it will mean something useful. The Historical Implied Volatility Range in AAPL over the last year is around 11-29. Now having some Historical perspective, historically, I can see 17 is in the lower end of the range. A Practical application is this: If I am bullish , buying a Call at around 17 volatility isn’t a bad buy from a Volatility perspective. Analogy: It’s […]
When VIX is at 10 and SPX is near all time highs, I like Call out-of-the-money Back spreads . Here is the trade in SPX at the $2390 price: Buy 2 June 19 2450 Call and Sell 1 June 19 2420 Calls for $3.40 Credit. Position Greeks: Deltas -3 Gamma .21 Theta -4.70 Vega 71. Total Risk or Margin $2600. Total potential Yield if SPX under 2420 at Expiration in 38 Days is 14% ( credit divided by Risk or Margin). Because of the Vega and Time Decay Risk, would only stay in this trade till next Thursday or Friday. Looking for about 6% profit on risk of $ 2420 or about $145. Just executed this trade live at 2:11 pm central time on Friday ( today) May 12. Watch Blog next week for updates on this trade.
With SPX at 2398 Buy 1 Jun 16 2430 Put Sell 1 Jun 2 2400 Put. 27.60 Debit Greeks: Deltas -15, Gamma -.29, Theta 5, Vega 32, Margin or Risk $2760 5 Step Trade Plan: #1 Why am I doing this? Market near All time highs and hedging IRA or individual trades to the downside. #2 Set up: I am Buying my Long Put Option in SPX about 30 points in-the-money and selling my Short Put option about at-the-money. I have no risk on the downside. #3 Risk Management: Profit Target about 7-10% of initial debit. Max Loss is about 10% of initial Debit. #4 When to Adjust on Upside? If SPX hits 2410-2415 area #5 How to Adjust on Upside? Buy 1 2400 P and Sell 1 2410 P (Put Vertical). If SPX continue up, Buy 2410 P and Sell 2420 P. (All Adjustments in the June 2 Expiration). Dan Sheridan email@example.com
Yesterday in the Blog I talked about a Live GOOG Pre-Earnings Calendar I did. Today I took off the trade for about a 7% profit in 1 Day. I bought 1 April 28 Expiration 835 Call and Sold 1 April 21 Expiration 835 Call for $10.80 Debit and sold it out today for a Credit of $11.54 . The price of GOOG was 834 yesterday when I bought the Calendar and the price of GOOG today was 835 when I took off the Calendar for a profit. I made $74 for every 1 Calendar, that would be a yield of 6.8% ( $74 divided by $1080).Why did the Calendar do so well in 1 Day? The implied Volatility of the long option went up more than the short option did. What would be an explanation of why that happened? Referring to yesterday’s Blog, we originally bought an expiration that will be affected by Earnings and sold an expiration that would be expiring before earnings comes out. Therefore as each day passes, our long options may increase in Volatility while our short options may do nothing. Dan Sheridan firstname.lastname@example.org
Buy 1 GOOG April 28 835 Call and Sell 1 GOOG April 21 835 Call for $10.80 Debit with price at $834.43. I just executed this order live at 1:17 pm central Chicago Time today, Monday. Why did I do this? Why would I pay 26 implied volatility for my long call and sell my short call at an 12 implied volatility? Because Earnings is coming next week and that will keep the April 28 Expiration Options high while the April 28 Options expiring this Friday will not be affected by next weeks earnings and the Implied Volatility should stay low or go down. How does this benefit me? For this Calendar Trade, I will have very little concern that I will lose money from Volatility decreasing and thus hurting the trade. Will I still have Price Risk? Absolutely. I paid $10.80 Debit or $1080 for this spread for every 1 contract. My goal would be to make 8-10 percent profit on my investment of $1080. So, I will have an order in immediately to sell out this Calendar for around $11.65 Credit for the rest of this week. That would be about an 8% profit on Capital used for this trade. […]
In Monday’s Blog, I talked about a Live GOOG Earnings Calendar I traded. I bought the April 28 Expiration 830 C and sold the Apr 21 Expiration 830 C for $9.55 Debit. GOOG was 828 when I executed the trade. Today, with GOOG around 823, $5 dollars lower, I sold out the spread for $10.05 Credit. That’s a 5.2 % yield in 2 Days! For every 1 contract, the profit was $50 on capital of $955, the initial debit. If you added in Commissions, our Community pays $ 1 per contract, the yield would be 46 divided by 955 = 4.8% yield (Commissions barely affected the yield). Will look to re-enter GOOG for another Earnings Calendar in tomorrow’s Blog. Dan Sheridan ~ email@example.com
As of 12:35 PM central today, SPX is 2361 +6 and VIX is 13.52 +.65. That is unusual for VIX to increase on an up day, why is it happening? Because there is unrest in the world and people want some insurance . With the US bombing the Syrian Air Base last week, and the bombing of the Christian Churches in Egypt, people are a bit nervous. Throw in the fact that the SPX is up about 15% since November, and you can see why folk, especially fund Managers , would want some downside insurance with the VIX, and are willing to pay up. Any Trading Opportunities? With this Friday a Holiday for the market, I am a little lighter in trades this week. In GOOGL, here is an pre-Earnings Calendar Play. Buy 1 April 28 Expiration 830 Call and Sell 1 April 21 Expiration 830 Call . Total Debit $9.55 . I just bought this live at 12:59 pm central today with GOOGL trading at 827.79. Earnings will be the week of Monday April 24. The purpose of this Calendar is to put on a trade that shouldn’t have any Implied Volatility Risk. We are buying the long option […]
Just Bought the Mar 22 expiration 2340-2350-2360 Call Butterfly in SPX for $4.50 Debit at 10:24 am central. This trade expires at the end of day today. Market seems quiet so far after big down move yesterday. Between 2345 and 2355 I do really well. As SPX moves above 2355 or below 2345 we would start to lose money and I would look to get out . The goal is to sell out the trade that I paid $4.50 for $5 credit, could be within an hour, and the profit would be about 10%. If the spread that I paid $4.50 debit goes near $3.75, would get out. Total cost and Risk of trade is $450, the debit.
Just started our new 2 week online class, “The Double Barrel Calendar”, and wanted to share the class trade we put on live yesterday. SPX was around 2370. B 1 Apr 5 2390 C and Sell 1 Mar 22 2390 C. B 1 Apr 5 2350 P and S 1 Mar 22 2350 P .Debit of $14.05 and Margin or Risk of $1405. Join us in tomorrow’s Class as we analyze this trade and cover more on this interesting strategy that serves as an alternative to the Iron Condor when Implied Volatility levels are low, which they are now. VIX is currently at 11.74. The foundation of this strategy as well as an Iron Condor is the short strangle. In this trade, we are selling the 2390 C and 2350 P in the Mar 22 expiration. Unlike the Iron Condor, which will buy the long hedges in the same expiration, we buy our long hedges in the Double Barrel Calendar in a further out expiration and the same strikes as the shorts. In this trade, our longs are in the Apr 5 expiration. In a low Implied Volatility environment, this strategy gives us wider room or Breakevens than a single Calendar Trade. […]
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