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BookingAlpha Option Trading Advisory

Thursday, May 17, 2012

June SPY spread adjusted

An adjustment had to be made this afternoon on the SPY 131/129 Credit put spread for a loss. Again, being extremely busy at the office prevented me from blogging in real time. The spread was rolled over to the 127/125 strikes seeing that the markets are at extreme oversold levels and a pull back is due any time in spite of the fact that the world seems to be falling apart.


BUY TO CLOSE 14 Jun 131 Put @3.06
SELL TO CLOSE 14 Jun 129 Put @2.34
Net Debit: 0.72 (Opened for initial credit of 0.30, there is a 0.42 loss here (-$588) )
Commissions: $42.00 (Assuming Interactive Brokers' schema for Canadians)

New Put Credit spread:
SELL TO OPEN 14 Jun 127 Put @1.78
BUY TO OPEN 14 Jun 125 Put  @1.36
Credit: $0.42 (0.42 * 100 * 14 = $588)
Margin: $1.58 (1.58 * 100 * 14 = $2212)

Break-even point(s): 126.58 (Currently at 130.86, the SPX index would have to lose another 40 points to threaten the position in the next 29 days)
Probability of success: 66.45%
Days to expiration: 29
Max return on margin: 26.58%
Commissions: $42.00 (Assuming Interactive Brokers' schema for Canadians) 

I won't let this position get to expiration. If/When the pull back occurs, this position is 0.20 in profit, that is if I can close it for about half the price I'm getting as credit, then I will close it. This will just mitigate the initial loss suffered today.

Markets certainly look oversold with McLellan Oscillator bellow -300 which has only happened 4 times in the last 12 months. Stochastics extremely oversold, and only 14.57% of stocks above their 20SMA, while only 20.31% of them above their 50SMA. By every definition this is a very oversold market. Now, we never know if the capitulation candle was established today.

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Related Articles:
Weekend Portfolio Analysis (05-20-2012)
Weekend Portfolio Analysis (05-27-2012)
June SPY Credit Put Spread closed (05-29-2012)

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