This week my friends was a very nice week. Both trades were profitable and had very good profit percentages. The trend for the indices was slightly downward and almost all the price moves except for Friday were to the downside so we went with call options. The super volatility we have seen recently made me go farther out on the strikes than the usual 1 – 1.5 Std. Deviations.
SPX
Here is the SPX PM Settled Chart for the week ended 12/09/2011. The top line is the 1290 level where the lower end of our spread was. The second line is the trend line for the week. As you can see it is slightly negative or downward sloping. That was our determinant to use call spreads. Here is the process I went through for getting into the SPX Call Spread for the week:
1. After checking my usual indices (SPX, RUT, NDX) I ruled out the NDX as didn’t have the ROI I like to get. NDX ROI was only around 2% this week.
2. After deciding on the SPX I start looking at the trend line. When I was looking Wednesday the trend line was decidedly down, so that steered me to Call options.
3. Next I look at least 1 – 1.5 Std. Deviations from the current strike price.
4. The 1290-1300 Spread fit my bill as the 1295-1305 or 1300-1310 call spreads didn’t bring back the desired return objective. Both were under 4%
5. Using the probability calculator the 1290-1300 spread gave us a 90% probability that the underlying would not touch our lower spread value, so we went with it
Here is the trade:
SPX 1290 Call $1.67
SPX 1300 Call $(0.83) This gives a Net Credit of $0.84 or 8.4% ROI
RUT
A look at the chart will show that the RUT price was slightly net positive for the week. But looking at the chart showed the resistance on the upside at 765. The daily positive or negative moves were enough to show that the 765 resistance was safe. The technical were all lining up in my favor. Here is a rundown of the trade:
1. Ran through indices: SPX, RUT, NDX
a. Already made the SPX trade and ruled out NDX so RUT is the way to go
2. Looked at technical on the chart and getting ourselves at least 1 – 1.5 Std. Deviations away from the underlying strike price
3. 765-775 Call Spread fits our bill. This spread was the “tipping point” or the point between where the spreads have good value and where the spreads have very little value.
Here is the trade:
RUT 765 Call $1.06
RUT 775 Call $(0.38) This gives a Net Credit of $0.68 or 6.8% ROI
The SPX & RUT trades together gave me a blended 7.71% ROI this week on invested capital. So for every $1,000 I invested this week I returned $77.10. I will take this any day of the week.
Starting next week I will be putting up a couple of questions I have received recently as well as some terms to get the newer people up to speed.
If you have any questions or comments you can:
1. Leave a comment below
3. Tweet me on Twitter: @awagel01
Charts are courtesy of the FREE site freesctockcharts.com
TTFN
Ash
DISCLAIMER
The information I put up here is accurate and actual, but historical. My point is to show the trades I do each week, both good and bad, and how I make my trading decisions. If you choose to use the same credit spread strategy I do that is great! But I am not recommending actual trades here or on my Twitter feed. I am only putting up what I do for the information and education of the public. If, after doing your own due diligence and research you think my trades will work for you, then great, but realize I am not recommending anything. The choice is yours.
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