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BookingAlpha Option Trading Advisory

Thursday, November 6, 2014

Some more pain...

Short article to leave for reference during my time off in sunny Florida.

Today I sold an SPX 2110/2120 December Credit Call spread for 1.00 (1 contract only for the model portfolio)

I closed the SPX 2050/2060 November Credit Call spread for 2.95 debit. I'll try to sell 2080/2085 tomorrow for .50 credit. We'll see.

Related Articles:
SPX 2110/2120 December Credit Call spread expires successfully

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  1. This has been a relentless rising market since the October bottom. In my backtesting of SPX/RUT, I have seen this happen a few times over the last 30 years. This is why I don't like credit call spreads as much as credit put spreads. The risk/reward is just not there. At the same time, I feel it is important to have some hedge for a portfolio made up mostly of long positions.

    My ideal portfolio allocation would be to have a 50% cash position. Of the 50% used for trading credit spreads, I would allocate 40% for going long the market via credit put spreads and 10% to short the market via credit call spreads. The 50% cash position is to use for adjusting positions or buying debit spreads when necessary.

    Today, I decided to adjust my Dec SPY 208/210 credit call spread today even though the delta was not 30 yet but the cost to close is 200% my credit received. I initially took in .16 credit. I closed for .47 debit. The 208/210 was part of a winning Dec SPY 167/165 credit put spread that I closed earlier this week for a .15 profit. After closing the 208/210, I realized a loss of .16 debit.

    I adjusted to a Dec5 SPY iron condor 190/188 & 212/214 for .39 credit. My plan with this iron condor is to let it expire for max profits by the end of the year.

    If SPY goes up to 207 this month, I will adjust this iron condor out to Jan with another iron condor at 192/190 & 218/220.

    If SPY goes down to 195 this month, I will close my 190/188 credit put spread position, open a new Jan 180/178 credit put spread and double the size.

    Both of these potential adjustments should result in a very small debit or credit. My goal is to neutralize the loss of closing the trade with the adjustment. I remember what Karen the Super Trader said in one of interviews. She said “Once I collect premium, I don't want to give that money back." I know exactly what she means.

    You can follow me on Twitter @lienjonathan where I tweet my 90% probability credit spread trades in real-time for free.

  2. LT and Johnathan,

    Newbie question. Is any action required prior to or on expiration of a credit call spread I.e. Sell the long leg of the spread, etc?



    1. As long as you are out of the money, no action is required. You can let it expire for max profits. I usually like to close my spreads when I have reached 80% to 90% of the max profits.

    2. Thanks Jonathan. How about if you are deep in the money?


    3. If you are deep in the money and it is a cash-settled index like RUT and SPX, your account will be deducted for the maximum loss. For example, if I sold one contract of the SPX Nov 2000/2005 credit call spread my broker will deduct $500 from my account if SPX closes above 2005 by Nov expiration.