This week, the SPX has been between 2700 and 2723 if you just look at the closing prices of SPX this week and today. Big Deal? No. Twenty three point range in a $2700 vehicle over the last 4 days? No big deal. Let’s look closer. Monday and Wednesday had huge intra-day price ranges, that’s a big deal if you have positions on. Monday had a 44 point range intra-day from 2698 to 2742 and closed at 2717. Wednesday this week had a range of 2699 to 2746 and closed at about 2700. When you see intra day ranges between 45-55, that’s huge. Those are the types of ranges you saw at the beginning of the correction in early February. That makes trading short term trades very difficult, especially if the IV is rising. With the VIX at about 18.39 as I speak, I am a little more comfortable with putting on short term , short Vega strategies like Butterflies and Iron Condors , even with intra-day ranges exploding, why? Because I am now getting some compensation for the volatility in terms of farther ranges in my Iron Condors and cheaper prices and wider Break even points in my […]
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
SPX 2770.59 at 12:15 central. Jun 29 Expiration. 11 Day Unbalanced Butterfly B 1 2740 C, S 2 2770 C, B 1 2795 C 9.65 Debit. Margin/Risk $965 Beginning Greeks: Price 2770 Deltas -1.38 Theta 19 Vega -58 Profit target and Max Loss: 8 % Profit and 10% Max Loss of Margin/Risk of $965. Will keep it simple and use no adjustments. Mid Price now is 9.65 and not filled yet but still keeping my bid at 9.65 Debit.
B 1 Jun 1 182.5 Call, S 2 Jun 1 187.5 C, B 1 Jun 1 192.5 C, 1.84 Debit. Margin and Risk $184. 11 Day Butterfly Trade. Filled at 12:09 PM CT, with AAPL at 188. Profit Target : 20% or $35 for every 1 contract. Sell out Butterfly at $2.19 Credit. Max Loss is 20% or $35 for every 1 contract. If Butterfly price goes from 1.84 to $1.49, get out. Why am I trying to get 20%? Because 10% Profit target for every 1 contract would be only $18, and after commissions , there wouldn’t be much less. This is a very cheap dollar trade, only an outlay ( debit) of $184 for every 1 contract. Dan Sheridan email@example.com
Double Calendar B 1 Jun 8 2750 C, B 1 Jun 8 2690 P, S 1 May 25 2750 C, S 1 May 25 2690 P 16.30 Debit Profit target: Sell Spread at 17.45 credit for about 7% profit. Max Loss when Spread decreases under 14.80, loss of around 10% Dan, covered the trade in more detail in the video below.
Trading Cash Secured Puts or Covered Writes, basically the same trade, is outrageously expensive in a retirement account. With FB at 165 today, Buying 100 shares at 165 and selling one 170 call at $4.50, expiring in 32 days, cost’s about $16,000 to trade!!! If doing an almost identical strategy called a cash secured Put, selling one 160 P at $4.50, the capital requirement is still going to be near $16,000. How do I do this type of a strategy in a very cost efficient way? Sell a wide put Credit Spread. Using FB as an example today. With FB at $165, I can sell the 160 Put at $4.50. Because the capital requirement is very high to sell the put naked, even if I have the capital too do it, I will look to buy a put against it at 15% the cost of my short put. My short put is going for 4.50, 15% of 4.50 is about $65, so look to hedge the short 160 put with the 140 Put . The May 18 expiration 140 Put is currently trading for .65. Now I have a 20 wide put credit spread, short the 160 Put and long […]
With FB at 159.83 at 11:34 central time today April 9, I did a Live Pre- Earnings Calendar Step 1: Set up: Buy 1 Apr 27 160 Call, Sell 1 Apr 20 160 Call, 2.82 Debit. Implied Volatility of long call is 47.71 and Implied Volatility of short call is 35.98. Step 2: Profit Target and Max Loss: Looking to make $30-$40 for every 1 contract, which would be 10-15% on Capital of $282. Max Loss would be around $50 or about an 18% loss on $282. So for a profit, when the Calendar price goes to the 3.15-3.25 area, would take off . When the price of the Calendar goes to around 2.30 from the initial debit of 2.82, I would get out for a loss. Step 3 is When to Adjust and Step 4 is how to adjust. For today’s trade, I will stick with just step 1 and Step 2 and not get into Adjustments. For people new to this type of a Calendar, let’s learn to walk before we learn to run.
Currently trading at $187, the stock has been in a range between roughly 170 and 200 since Mid August, about 6 months. I put on an Iron Condor today. Sell 1 Apr 6 207.5 Call, Buy 1 Apr 6 212.5 Call, Sell 1 Apr 6 167.5 Put, Buy 1 Apr 6 162.5 Put, Total Credit $85. Margin or risk for 1 contract is $415. The expiration of April 6 is 31 days from today. Looking to buy in the spread around .30 Debit. The profit target would be $55 on capital of $415 for 1 contract, or a yield of 13%. If Baba goes against me price wise, I will close out the Iron Condor if the spread price that I sold for .85 credit, trades over $2. Dan Sheridan firstname.lastname@example.org
18 Day SPX Iron Condor Live Trade put on around 11:30 am central today when SPX was about 2715. S 1 Mar 23 2805 C, B 1 Mar 23 2815 C, S 1 Mar 23 2575 P, B 1 Mar 23 2565 P, $1.70 Credit, Margin $830. Delta of short put and call at trade entry was 12 and 13. Plan is to make 7-8% of $830 and not to lose more than 10% of $830. As of 2:43 central today, SPX has run up to 2727, up 36 for the day. The spread is trading at around $2 right now, we are down 30 divided by 830 or 3.6% now. Would look for possible adjustment when short call delta hits around 19, right now it’s at 16, with SPX at 2726. I might roll up my short calls 5 points at an adjustment point as a possible adjustment. Dan Sheridan email@example.com
Closed High Octane Butterfly from Monday near the close yesterday for a credit of 1.50 Credit. The loss was very small, $5. I originally bought the Butterfly Monday for 1.55 debit. The original Butterfly was B 1 Feb 28 2755 C, S 2 Feb 28 2765 C, B 1 Feb 28 2775 C, $1.55 Debit. Why did I take it off yesterday? Yesterday, SPX traded up to 2789, over 20 points away from our short strike of 2765, not good with a 2 Day Butterfly! When the market backed off strong yesterday towards the close, I had the opportunity to take it for almost Breakeven and did so. Why did I wait till yesterday to get out when my plan on the Blog Monday was not to stay in the trade Monday for over 2 hours? Because I only put 1 contract on, $155, I got sloppy and didn’t follow my strict risk management and stayed in longer than I wanted to , looking for a profit. I got lucky yesterday when SPX backed off but always want to follow my plan! Dan Sheridan firstname.lastname@example.org
At 11 am central today with SPX at 2765, I bought 1 Feb 28 2755 C, S 2 Feb 28 2765 C, B 1 Feb 28 2775 C, for $1.55 Debit ( Margin/Risk = $155 for every 1 contract). Game Plan is to sell it for $1.85 Debit or 20% profit. I will only stay in this trade till 1 central time today or if SPX hits 2755 or 2775, whichever comes first, at that point , will exit trade. Dan Sheridan email@example.com
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