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BookingAlpha Option Trading Advisory

Thursday, April 18, 2013

May 2013 $SPX Credit Put Spread

Today I entered an SPX 1445/1440 Bull Put Spread for 0.50 using May expiration options

Buy 4 SPX May 1440 Put    @5.60
Sell 4 SPX May 1445 Put    @6.10

Credit: $0.50 (0.50 * 100 * 4 = $200)
Margin: $4.50 (4.50 * 100 * 4 = $1800)
Break-even point: 1444.50 (SPX was around 1545 when I entered the trade, a 100 point distance)
Probability of success: 90%
Days to expiration: 29
Max return on margin: 11.11%
Commissions: $12 (Assuming an unfavorable $1.50 per contract)

With only 27% of stocks above their 20SMA I feel the sell off will be contained. Obviously, I may be wrong, but I have a 100 point distance to be mistaken. To the downside 1530 should be decent support, and then down to the 1490 - 1500 zone, which could be strong support too.

Finally a chart of SPX at market close for future reference

Check out Track record for 2013

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  1. I like this trade that you just placed. I would have probably done the same thing but I was iron condoring with my bear call spread that is 10 points wide.

  2. Thanks Jonathan,

    I think it doesn't look bad at this point. And I would have probably rushed it a little bit too had I had a Bear Call open that I wanted to condor. Will see. The good thing is that if this position gets threatened VIX will be very high by then allowing us to make a roll lower down for a good credit

  3. Yes. I agreed. Bull put spreads never gave me problems. It is always the bear call spreads. I have been studying most of your trades starting from 2011. I am now reviewing your November 2012 trades. In a few days, I should be all caught up with your blog entries. I like to sell bear call spreads when market becomes overbought and sell bull put spreads when market becomes oversold. While we are not oversold yet, I wanted to iron condor with my May bear calls because I might not have another opportunity next week. I am done with the May cycle and will now look for June trades. If luck is on my side, we can go down another 3-5% and I can sell a bull put spread and once the market bounces and goes back up 7% or more, I can sell the bear call spreads. I am much more careful with selling bear call spreads now after getting whacked last spring, last fall and this year.

  4. Amen buddy! Same story here, Bear Call Spreads have been my misery as well. It's a tough lesson, but a good one for life. Uptrending markets crush the VIX and options premiums are so shitty. Forcing you to sell calls closer to current price action. Out of all my failures so far, I think robably 5, 6 of them have been Bear Call spreads versus Only one Bull Put spread which I could adjust and finally get out of succesfully. Taking this into account, I'll have to trade Bear Call spreads more carefully, and probably lower my expectations from a crazy +50% growth per year down to a more realistic 20% - 30%

    April 18, 2013 at 11:22 PM