Let's Trade Options

I was $$$$ up at the open & hoping for continuation of the down move into Friday. Didn't get it, now looking for continued bull action. I need about 3,700 to break even on the SPX spreads. I rolled Oct13 short legs out to Oct14 on the put spreads so those are still diagonal O14/17. That got back about 50c.....I also bot back to close the Oct14 short SPX call legs when they were a nickel.......A nice move up overnight and a bounce on good bank earnings could put me in good profit on the SPX calls, all long calls now but a ways otm, lowest ones are Oct17 3,850....

This week was a true agility test. I failed.

This week's trade. Entered the short call vert bracketed with the call calendar Monday. Followed with put end of the IC this morning. May forego hedging the put side. Will prolly take off the call set Friday.

End result, bot back the IC sides for a nickel a piece today, reduced the loss on the call calendar down to <40c. About a 2% week. I will prolly sell put verts b4 the FOMC.

in MT4 when we place a stop loss then that becomes the premium we pay to take a trade - profit is unlimited and duration is unlimited

in options duration is limited so this increases the risk x times for the same profit as MT4

in options premium paid is like commission paid to a broker to trade , its a game of coin toss if y`ou can earn it back

so in MT4 we earn more and safely - options helps brokers cheat better

Not hard to tell you don't have any actual experience trading options, other than perhaps buying puts n calls. I could argue the pros cons but the thread is called "Lets Trade Options" so actual options traders will talk about their trades. Even if I'm the only one here. So I won't bother arguing. I'm not selling anything. To each his own, I'll say, and bid you good luck, and farewell.

Selling 5 lot Nov2 verts at 20 delta, looking for $4 per side or better. Note the tail risk values to hedge.

IC tails can be hedged in various ways. The backspread SPY calls shown is one way to do it. In these trades, the IC is there to fund the later trade, because the dates are important ... Nov 2 is FOMC day, Nov 4 will catch a big move off the Fed. I will look at this again and move the backspreads closer together. I can set up the combo so the SPY spreads mitigate all the tail risk, but need to leave something to cover the backspread risk also. If enough time is left on the latter, the worst of the risk is avoided.

....needs +++

Monday's SPX set - the IC funds early and later dbl calendars. I will look to cash out the best front calendar by Friday, buy back any cheap short legs anywhere. So 10/28 is the first target. Kind of expect action to seize up pre-FOMC. The ultimate goal is to ride into 11/04 with one of the latter calendars maxing out & with lots of credit already banked from earlier trades.

SPX trade shaping up like so. No entry on the longer dated calendars, yet. May wait til the front ones play out first. Looking at similar for RUT come Tues....

SPX combo will have positive return between about 3,500 and 4,015 by 10/28....

Well options have edge of time decay or theta decay if you are seller especially in forex where pair doesn't move much. You can collect lots of premium Now a days it is very volatile but premiums are pretty good.

Took off the call side of the ICs above today for a net gain of about $1.50. Those were too tight at 3950 on 10/28. Put side of the IC off yesterday for net $3.25. So I'm left with the calendars....

....2 b4 the close, out of everything. yoyo mkt hard to trade w/o 100% screen time. Still eked out 3.5% for the week

....2 hr b4 the Friday close, out of everything. yoyo mkt hard to trade w/o 100% screen time. Still eked out 3.5% for the week

...scoping out reversal traps for the FOMC, maybe Nov 2/4 time spreads...

SPX set for coming week, to be adjusted Monday. I expect a mild follow thru from Friday @ Monday, so the debit or credit of all spreads will come down some. I expect stocks to rally into election day, so I might shade the calendars to the call side.

I have been doing these every week for a while and the results have been profitable, okay to great. I have had losers also, but they were due to me not managing well.

The general method is like this:

1) Pick your targets for the coming week and keep those in mind; Consider what's on the calendar also. 2) Watch Monday and look to get in after the opening moves; 3) get in an IC with the inside shorts @ about 20 delta, +/-. The short legs should be into the next week, for a min. 7 dte. With iv's as high as they've been, a week (or 5 td's) is enough; 4) Buy a double calendar set up to mitigate the tail risk of the IC. This can be done fully funded by the IC, with some to spare. These days I'm looking for $7.50 net from the IC with $25 wings. 5) The trade is set to come off with a good finish on Friday. If there is a good finish on one of the calendars, cash it out for good profit. (This may include taking off the IC under the calendar also.) Commonly, a good finish will cover the cost of the whole combo, plus a good net return. 6) If any of the IC short legs get down to 15c or lower, buy them back. 7) You can hold til expiry day of the IC and take everything off, or let the credit spreads expire, but Friday is the money day.

An alternate to the above is to have the calendars' long options expiring a day or more past the IC date. In the latter case, you can let the calendars run to see if there can be a runner into the "infinite" long option profit end of the p/l. These calendars cost more of course, so it's a trade-off. When SPX options iv's come back under 20%, this would be preferred.

Cost of the trade below, which is exactly like or similar to what I will do Monday, is $2,350 debit for the calendars, $4,125 credit for the IC; Max net profit (typically under the put calendar, will be around $3,600. Extreme case max risk is somewhere between $10k-$15k. On Friday, the trade will be in net profit between about 3,650 and 4,075. What happens if SPX attacks either of those ends b4 Friday? Well, that would be an outsized move, but you can exit early with small loss, roll down the safe end of the IC to cover some of that, etc. You can set stop orders on the short legs of the IC, I never do.

Same trade above with the net debit for the calendars set to match the net credit from the IC, within a couple $100 or so. By loading up the calendars, you push out the b/e's for the Friday finish - those as below now about 3,590 and 4,120. Max profit under the calendars also rises, to somewhere around $10k on the put side, maybe $12k under the calls. I might trade it this way, but I am looking at a lot of different combos so I don't usually put all eggs in one basket.

I'm not sure there will be big moves after the 11/2 FOMC, but there could be. After a heavy move up in the last weeks, I could see a hard reversal on an over-hawkish FOMC. Options iv is elevated around Nov2-4, given the uncertainty of that event. Front options higher iv is something I always look to exploit in time spreads.

actual entry above, will shore up tails tomorrow, favoring the put side but will do both

Hedged the risk ends with SPX long verts, set @ a day after the last short legs, as close in as I can afford. $50 wide verticals with extra time are lucrative and do a nice job of negating the tail risk on the IC

looking good, especially if spoos will drop another 100 by Friday. Looking for 3,675 to maxP. Call short legs @ Nov4 and Nov7 will be cheap enough to buy back Thursday.