How to Cheaply Trade Cash Secured Puts in a Retirement Account?

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 the 140 put for roughly a $3.80 credit. My risk or margin is now $1620 for every 1 contract versus $14,000-$16,000 for every 1 contract doing a Covered write or cash secured put!! My profit target might be to make 8% for the month on my capital for 1 contract of $1620. That would be $130 for a profit target on every 1 contract. If I sold the credit spread for $3.80 Credit, I would look to buy it back for $2.50 debit. As far as a Maximum Loss, if I lost 10% would get out. Using this trade as an illustration, if the credit spread exceeded $5.40, would get out for a loss.

 

Dan Sheridan   dan@sheridanmentoring.com

Live FB Pre-Earnings Calendar Trade

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.

Live Iron Condor in BABA

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

dan@sheridanmentoring.com

Live Iron Condor Trade

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

dan@sheridanmentoring.com

Update to Monday Blog on High Octane Butterfly

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 dan@sheridanmentoring.com

High Octane Live Butterfly

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

dan@sheridanmentoring.com

Blog Update from Monday’s Live SPX Iron Condor

During a Webinar for Ally Invest Monday, I did an SPX Iron Condor for $1.70 Credit. Details on the trade are in Monday’s Blog titled “Live Iron Condor Trade”. Today I took the trade off for a debit of $1.25. The net profit was $45 for every 1 Iron Condor or a yield of 5.4% in 2 days. With the market relatively stable in the morning today and the VIX dropping almost 4 ½  points  , I got the opportunity to take it off for good profit today.

Dan Sheridan

dan@sheridanmentoring.com

Live Iron Condor Trade

With SPX at $2659  +40 Points, I did an Iron Condor in the Mar 29 Expiration, 45 Days out. Sell 1  2830 Call,  Buy 1  2840 Call,  Sell 1  2370 Put,  Buy  1 2360 Put. Total Credit $1.70, Maximum Risk and Capital allocated is $830. (Trade was discussed earlier today in a webinar with Ally Invest)

4 Step Risk Management Plan

#1  Set Up:  Picked Short Strikes by Selling a 12 Delta in the Calls and Puts. Expiration is 45 Days out from Today.

#2  Profit Target and Max Loss. Looking to make 8% on Capital or risk of $830,  that would be about $65 per every 1 Iron Condor. I would have an order in to buy back the spread at  $1.05 Debit.

If the market goes against me, don’t want to lose more than 15% of the $830 Capital or about $125. So if the spread expanded to $2.95 from the initial $1.70 credit, would get out.

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Why am I willing to lose 2X what I am hoping to make? I don’t want to lose more than I make, but to give the probabilities time to work, I have to give myself more room before I adjust.

Steps 3 and 4 talk about When to Adjust and How to Adjust, a little more advanced topic, so for this  Iron Condor , I will keep this simple and just give a plan of where I would take a profit and where I would get out for a loss.

Dan Sheridan

Dan@sheridanmentoring.com

Note: Tomorrow at 11 am central starts a new 3 week class at Sheridan Mentoring:  Trading Double Calendars in an Volatile Environment. This has been one of the most successful strategies in Sheridan Mentoring over the last 5 months, and we will spend the next 3 weeks discussing how to manage and trade this strategy in a more volatile environment. Go to Sheridanmentoring.com for more information. All classes are recorded and archived.

 

High Octane Butterfly Trade

I put on the below trade earlier today in a webinar with AllyInvest.

Trade:  High Octane Butterfly trade

Buy 1 SPX Nov 29  2590 C,  S 2  Nov 29  2600  C,  B 1  Nov 29  2610 C,  $3.15 Debit

Risk Management:

I would sell out the Butterfly for $3.50 or higher, about 10% yield on every 1-2-1 Butterfly. If the Debit goes under $2.80, would get out. Would get out of trade by 10 am central tomorrow at the latest.

Dan Sheridan 

dan@sheridanmentoring.com

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Blog Update from Today’s Live Butterfly from earlier today

Took off the trade I bought about 1  ½ hours ago for $11.90 Debit for a credit of $12.40. Why was I able to do this? SPX dropped from our short strike of  $2590 to $2585, and we were short about 4.3 Deltas for every 1-2-1 Butterfly at trade initiation.

 Dan Sheridan

dan@sheridanmentoring.com

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