Hi Ho there boys & girls , ladies & gentlemen!
A little announcement: Hashley Capital Management is officially up and running. The papers were signed and delivered to the IA Secretary of State this week. So we are now officially a company!!
This was another profitable week! It was great overall. No major health problems and we made money.
This week was interesting. Starting Tuesday afternoon after seeing some great spreads – 6% and better in the RUT and SPX I started to enter trades. At about this same time both indices started their rise so the 6% spreads were quick to leave. I wasn’t able to get any 6% trades in, but did come close.
Alright, now onto the trades for the week: All were in the $SPX – the afternoon settled S&P 500 index. Since this is the traditional option expiry week both RUT and SPX settled on determinant price Friday morning, but we could not find any RUT trades – we will talk on this later. Here is the breakdown of the trades:
SPX
SPX 1300 Put ($0.96)
SPX 1310 Put $1.50 This gives a Net Credit of $0.54 or a 5.4% ROI
SPX 1305 Put ($1.08)
SPX 1315 Put $1.56 This gives a Net Credit of $0.48 or a 4.8% ROI
SPX 1320 Put ($0.87)
SPX 1330 Put $1.30 This gives a Net Credit of $0.43 or a 4.3% ROI
SPX 1325 Put ($1.06)
SPX 1335 Put $1.59 This gives a Net Credit of $0.53 or a 5.3% ROI
ANALYSIS
1. The price straddled the 20 day Simple Moving Average (SMA) all week. Monday opened at 1343.06 and Friday closed at 1362.97 with 1340.83 the lowest the index hit and that happened Tuesday afternoon. The slow and steady increase over the week and the close hugging of the price and the 20 Day SMA are technical indicators to go with the put credit spread.
2. The overall trend for the week was that the closing price was above the 20 day SMA. Even on Friday when there was a big upward spike at the beginning of the day and a steady decline the rest of the day the price we still stayed above the 20 day SMA. This is a GREAT confirmation signal that our choice to go with the put credit spread was a good one.
3. The spreads we entered into were between 1.5 and 2.0 Standard Deviations (SD) from the current price (Tuesday and Wednesday) when we entered the trade.
4. We did not commit all our resources to this trade. I split my resources and put on several trades this week, all with ROI above 4.0%. AND we still kept a safety pool in case we ran into trouble. REMINDER OF RULE FROM LAST WEEK: BIG RULE = NEVER COMMIT ALL YOUR RESOURCES TO ONE TRADE & ALWAYS LEAVE YOURSELF SOME CAPITAL IN CASE YOU NEED TO MAKE A LAST MINUTE ADJUSTMENT.
5. Again I created a ladder in this trade series. REMINDER OF OTHER BIG RULE FROM LAST WEEK: BIG RULE = THE FURTHER IN STD. DEV. YOU GET AWAY FROM THE STRIKE PRICE THE SAFER THE TRADE, BUT USUALLY THE LOWER THE PREMIUM.
6. I did look at the other index option – RUT and NDX. They did not have the ROI matched with the safety and trend line analysis that made me comfortable to enter into any trades.
7. Summation:
a. The closing price trend line was up for the week
b. The closing price straddled the 20 SMA all week
c. I was able to get good ROIs at 1.5 – 2.0 Std Dev away from the strike price
d. All these added up to getting into the Put Credit Spreads. We pocket our overall 5.1% and move on to the new week!!!
QUESTIONS
You don’t talk about the Greeks much when you do your analysis. Do you use the Greeks when doing your analysis?
Another good question. To be perfectly honest I do not use the Greeks as much as many traders of traditional options use them. And they are not a big part of my analysis. There is one that I do look at and do use as part of my analysis is Theta. Theta is a measure of time decay. All options have a defined life, I deal in weeklies that have a one week shelf life. As the options get closer to the expiration date the option will lose some value due to time decay. Since I deal in credit spreads I want to know what the value of my time decay is. That is what theta measures. Here is a definition of Theta: Theta shows how much time value is eroding as each trading day passes. Example: if Theta = -.20 and the closing price on Monday is $1.00 then the opening price on Tuesday should be $0.80. Theta is always a negative number for calculation, but you have to watch some option chains on online brokers. Some assume that everybody knows this and puts Theta out there without a sign, implying to the newer traders that Theta is a positive number.
I am working up a post detailing the basic points of the Greeks and will have that up soon. If you are into just about any option trading it is a good idea to know what the Greeks are and what they can tell you. If you like to buy options and hope they rise in value then the Greeks are very useful. Like I said, I do not use them as a main part of my analysis, but I do look at them as a secondary metric to help confirm my analysis from other data.
Keep the great questions coming. I love it. Also let me know how this blog helps you or what you would like to see. I am striving to improve the blog and make it as meaningful as possible.
DISCLAIMER: Hashley Capital Management, LLC; as well as myself are not giving any trading advice. All data is historical in nature and is intended for use as an educational tool. Trading in options can result in loss of capital. There is no attempt to sell any brokerage services or act as a broker or dealer by Hashley Capital Management, LLC. Any forward looking comments on this blog are not attempts to solicit business for Hashley Capital Management, LLC. If you choose to follow the same path Hashley Capital Management, LLC after doing your own due diligence than that is your decision and yours alone.
Reach me @:
Email: hashleycm@yahoo.com
Twitter: @awagel01
Or leave a comment on the blog
TTFN
Ash
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