Bearish SPX butterfly

With SPX near key support levels a bearish butterfly looks like an interesting speculative idea. The fly, being short, can increase the speed at which it can work for us if we are correct on the downward direction of SPX. I plan to take it off when I am  up or down 50% on p/l based on the trade cost.

With SPX trading around 2425:

Buy 2 Aug 25 exp. 2420 puts
Sell 4 Aug 25 exp. 2400 puts
Buy 2 Aug 25 exp. 2380 puts

Debit around 2.60

Max risk is the debit of the trade

Mark Fenton

mark@sheridanmentoring.com

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Looking for an entry to a VIX trade

Recently I blogged about buying VIX calls when the levels were near all time lows. I am looking again for an entry point to go long  VIX. Looking to buy VIX calls if  VIX level drops below 12.

Currently with the VIX trading at approximately 12.5 the Oct 18th expiration 14 calls are trading at 2.00. This means on expiration day (if you purchased that call now) if  VIX was above 16 you would be profitable.

VIX Spiking

If we could enter a little cheaper when the VIX was below 12 that would be even better. The VIX has been spiking to the 14/15 area about every 4 to 6 weeks over the past several months.

We are now heading into September and October which are traditionally volatile months so I expect the same should be happening again. If you purchase the call(s) look to sell them on a VIX price spike, which can be short lived, so you have to monitor this trade closely.

I have no set profit target, just looking to let the calls be in place to sell at a nice profit when volatility rises.

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Mark Fenton

mark@sheridanmentoring.com

Backspread live trade

In today’s Webinar for Ally Invest ( previously Trade King), which we do every Monday at 11 am central, the trade today was a Back spread or Back ratio trade.

With SPX at $2472 , I bought 2 Sep 1 expiration  2535 calls and sold 1 Sep 1 Expiration 2510 calls for $1.80 Credit. I like these type of trades when SPX is near all time highs and VIX is 11 or under.

Live Trade

This was a Live trade. I executed this trade by doing a credit spread and then buying the extra call. I like to keep the position deltas near zero or a little long at the onset to combat the Volatility risk of this long Vega trade on the upside.

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My position Greeks right now  with SPX at 2473 are: Deltas  -5.46   Theta    .61      Vega  -3. This is an OTM Call back spread  that starts out short Vega but picks up quite a bit of long Vega on the upside from the extra long call.

Deltas

I would of rather started out position deltas near zero or a tinge long but this is OK for now. I hope to buy this spread in for a debit of around $1.00. This trade ties up about $2000 of capital in a Reg T account at most Brokerage houses.

If I buy in this trade for $1.00 debit, that would be about a  4% yield. This is a 32 Day trade and I would get out of this by Aug 8 to avoid time decay risk on this trade, especially if SPX moves up toward my long strike.

Dan Sheridan

dan@sheridanmentoring.com