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Saturday, October 22, 2011

Getting started with serious demo-trading

In the morning of October the 20th, two days ago, I officially started my serious attempt at trading income plays and keep a record in this blog.

The trade was a Bear Call Spread, and it was entered as follows:

Sell 12 SPY Nov 130 Call @0.65
Buy 12 SPY Nov 132 Call @0.35

As a result a 0.30 credit was obtained per vertical, meaning a total of 0.30 * 12 * 100 = $360 dollars of credit. The maximum loss in this play is $2040 if the market skyrockets before November 19 and SPY is up beyond 132.

(Click on image to enlarge)


A $360 credit against a $2040 margin means a potential 17.64% return in less than a month. The trade is currently losing a bit of money temporarily as the markets made a decent move up on Friday.

Rationale behind the trade is that markets are oversold and the 130 Level on SPY was still 6.5% above the market the day the trade was open. The upside move has been with light volume as well, which means it might not be a solid and decisive move. As you can see in the chart below it looks like despite being oversold, the markets want to push above the resistance line of the last 2 months. If I am threatened I'll be adjusting this trade later.

(Click on image to enlarge)


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