Well, this week is another lesson on how to manage trades. This time there is a happy ending. We made money this week and we didn’t lose anything. We stayed on our rules and they kept us safe.
Here are the particulars: Wednesday while looking for spreads to trade I found one really quickly. That trade was: SPX 1275-1285 Jan 12 Put Credit Spread ROI = 5.3%. The issue was that I just couldn’t find another spread to trade. It was very tempting to try and force a trade through and see what happens. BUT that is not what our rules state. The rules state that if we cannot find a trade suitable we do not put a trade solely to put a trade on. Try as I might just couldn’t get one to be over 2.8%. My lower limit is 3% so I didn’t put one on.
Luckily I didn’t because all the trades either would have lost money or cost more than they would have made me. This is why we have our trading rules. These are rules that have been forged over time and trial and error. Everybody’s rules are different, but they work for them and their trading style. The rules you establish are there for a reason. Listen to them!!!
Now on to this week’s trade analysis:
The Trade:
SPX 1285 Put $1.19
SPX 1275 Put $(0.66) ROI = 5.30%
The two solid lines are the parameters of the trade. A couple of things to look for:
1. The price hovered around the 20 day Simple Moving Average (SMA) and mostly stayed above it. This is a BIG technical indicator to go with the put credit spread.
2. The overall trend for the week was slightly up. Again another big technical indicator to go with the put credit spread.
3. The spread we entered into was 1.5 Standard Deviations (SD) from the current price (Wednesday’s) when we entered the trade.
4. We did not commit all our resources to this trade. I split my resources and put half into this trade.
5. Trading was very thin on ROI going lower on the option chain: 1265-1275 Put Spread ROI = 2.8%, 1260-1270 Put Spread ROI = 2.0% and the results just got lower, so the 1275-1285 was the “Tipping Point” spread we look for to trade. Going lower on the option chain for put spreads lowers the risk, but as you can see also lowers the reward. If we were going with a Call Credit Spread we would go up the option chain to get the same result.
6. This would have been a good week to enter into an Iron Condor as the price action was fairly steady throughout the week. I thought about it, but the lingering cold did me in & I didn’t get to that trade.
7. By following my personal rules, archived on this site by the way, I was able to come out of this week with a good profit. The old athletic phrases of “Staying within yourself”, and using the system” showed again why they are tried and true.
I have started some more questions, but this past week and a half I have been really put down with a lingering chest cold, so those answers will have to wait until next time. Sorry. Keep the questions coming; I like the interaction and ideas. There are some pretty smart people reading this blog. Stay with me!!
Reach me @:
Email: hashleycm@yahoo.com
Twitter: @awagel01
Or leave a comment on the blog
TTFN
Ash
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