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 the volatility in a lower range, I like the possibilities of an SPX weekly calendar today. I am looking at the trade below:
Sell 1 SPX May 19 2390 put
Buy 1 SPX Jun 2 2390 put
Debit for spread is approx. $7.25 with SPX trading at 2390
Total cost per spread at this level would be $725 plus commissions. Looking to close trade at a 10% gain or 10% loss. If you get filled at $7.25 immediately place good to cancel order to sell at a profit at $8.05. Close trade at a loss if you are down $80 on the spread.
Over the past ten years I have been a full-time trader and options trading mentor. I have found that becoming a mentor, and coaching students all day, has helped my own trading immensely. As a mentor I see day in and day out what works and what doesn’t, So whenever someone asks me how can I trade options successfully I speak through the experience of the hundreds of students that I have mentored over the years.
The most important component to being a successful options trader is to have a plan. The plan is what will I trade , how will I trade it, what will my profit goal be and what will my max loss be. A very important part of the plan is to find a valid option strategy and having a good understanding of how the chosen vehicle moves. Once I enter a trade how will I manage it if it works for me or if it happens to work against me how can I hedge my risk and how can I adjust my trade. These are all very important things you must know before you ever enter a trade. Many times I see traders who have a plan, but the plan goes out the window once they are confronted with any unforeseen conditions and recklessness and indecisiveness ensues. So stick with your plan and adjust only if needed, not following every emotion and whim that arises while you are in a trade.
I think it’s also important with the trade not only having a strategy and a plan but to have trading goals. You should keep a written record of your trading goals and your trade results over time so you can see for yourself what works for you and what doesn’t, and make changes along the way. Risk management is so key as well as a max loss number and adjustment plans. Many times when you are trying to make a monthly living in options trading it’s really not how much money you make when you win, but losing the least amount on a loser. If you have a 10% profit goal a month and you are successful most months, that will work if you keep your losses to 10 or 15% the months you lose, but if you are losing 30% and 40% in bad months that will become a problem.
Lastly, you need some accountability. I found for myself and for other traders if you have someone to talk to about your trades and to give you a second set of eyes to look at them and give you some guidance will do great things for your trading and take you to new levels of ability and success. At Sheridan mentoring that’s why we feel that one on one mentoring is the best process for developing traders. Trading can often be solitary and being on your own you can tend to lose your way. Having someone checking in with you that can keep you accountable will keep you on the right track and make your trading much more successful. We at Sheridan options mentoring are here to help you with your planning and educational needs.