Below, is a trade that I put on earlier today in a live webinar for Ally Invest.
Sell 1 Nov 24 2605 SPX Call , Buy 1 Nov 24 2610 C, $1 Credit. SPX at $2571.
4 Step Risk Management Plan
Step #1 With SPX about 12 Points off of the all time highs, thought it appropriate to do a Call Credit Spread in SPX. Sold a Call at a 20 Delta and bought a call 5 points further out-of-the-money. The risk is $400 for every 1 spread (risk of $500 minus the $100 credit). I filled this trade live at 11:35 am with SPX trading at 2571.
Step #2 Profit Target and Max Loss. Profit Target is about 10%. We will buy back the trade for .50, half the credit in this example. Max Loss is 15%. If the $1 Credit goes to 2 .00, we will take off the trade for a $2.00 Debit or a loss of $1.00 on the credit spread, down 20%.
Step #3 When to Adjust ? and Step #4 How to Adjust? Not applicable here because we are simply going to take off for a profit or loss and won’t be dealing with adjustments for this trade.