Hey my trading bretheren (and sisters)!
Another week of successful trading. This week Friday went the right way warly and never looked back. Lets get to it and analyze the trades.
TRADES
SPX 1305 Put $1.26
SPX 1295 Put ($0.79) This gave a Net Credit of $0.47 or 4.7% ROI
NDX 2500 Put $1.11
NDX 1300 Put ($0.62) This gave a Net Credit of $0.49 or 4.9% ROI
Analysis
NOTE: I have put the NDX on a straight percentage basis so an even comparison could be made. Remember the NDX weekly in the 3rd week of the month can have $10, 20, or 25. This particular spread was a $20 for a total to $2,000 margin required (20*100 units = 2000)
This week shaped up a lot like last week. There was downward activity at the beginning of the week, but it picked up toward Wednesday and went up the rest of the week. These are the types of weeks that we like. A strong trend one way or the other. This week was the strong up trend, giving us a great way to trade put credit spreads.
Look at the charts – the price is bouncing off the SMA lines to the upside. This coupled with the directional move upward in price made this an easy week for trading.
Let us take a walk through the basic tenets of my system to see how I arrived at these trades:
1. Find the direction of the market. The long term trend for both the NDX and SPX is down, but during the week there was a large uptrend. In fact this week added to last week to give the best two week return of the year. Being in the weekly options we decided to go with the short term trend over the long term trend.
2. If the market direction is down – use call spreads, if the direction is up use put spreads. Since we decided to go with the short term trend which was up, we used the put spreads.
3. Make sure there is no news that is scheduled that will effect your spread trade. No scheduled news conferences or earnings announcements were on the calendar when we made the trade.
4. Choose among the following for your trades: Indexes – SPX, RUT, NDX. Equities/ETF – PCLN, GOOG, AAPL, GLD, AMZN. I chose the NDX and SPX. These two gave the best return of the potential names on the list. I even went back to the total list of weekly options and tried those. I couldn’t find any with a greater return.
5. Find a spread at least 1.5 Standard Deviations away from the strike price with at least a 3.5% ROI. After looking at the indexes and equities I use the NDX & SPX fit this bill.
6. Use your trading platform’s probability calculator to get at least an 85% probability of success. The anaomaly that appeared last week didn’t show up this week. Both Optionshouse and Trademonster were within a point of each other. The Optionshouse number = 89.2% and the Trademonster number was 88.6%.
7. If possible use the RUT or NDX indexes as they settle Friday morning while the others settle at close of market Friday afternoon. I did try this, but the ROI just wasn’t there on these options at the time of trade.
8. Monitor your trades, but don’t obsess. I was good on this basically from the time of the trade. I did look some on Friday but it was clear early that the market was going up for the day so I was a winner!!!!
9. If in a losing position Friday morning, try to wait until the European close to tradeout of your position. This time I didn’t have to worry aout this as our trades were good from the start on Friday.
10. Don’t put all your eggs in one basket. Always trade at least two spread trades. That way if one goes bad or you have to exit early, the other one will hopefully be ok and you can still scrape up some ROI.
Another thing that is in the wings. I am looking at extending the time frame my trades are open. Weekly options are issued each Thursday and expire the following Friday. For example, the weeklies that are in play as you read this were issued on June 14th and will expire on June 22nd. I put on a paper trade in the NDX weeklies. Here is the paper trade I have on:
NDX 2475 Put $4.80
NDX 2450 Put ($2.30) This will give a Net Credit of $2.50 for a 10.0% ROI
Again this is a spread with a $25 difference. This gives the difference in ROI and Net Credit.
I am trying this because I saw a big difference in premiums on the put side when they came out. I think this is part of the Greek election thing that went on this past weekend. That came out the way the market thought with the pro-Austerity group winning. It also looks like as of now that they will forma ruling coalition. Of course that was the thought 6 months ago when we did this the last time.
The big premium being paid is what caught my attention. I also did my system on this trade and it passed with flying colors. The one thing that makes me alittle nervious is the longer time frame the trade is open. This trade will be open almost the full time the weekly option is open.
At the end of today’s trading (Monday June 18th) we are doing quite well on this trade. Right now the bid price on both parts of the spread = $0.00.
This is the first of several weeks of paper trading this idea to see how I canmake it mesh with my system. So, the very very very early look seems promising. I will update you in the progress on this latest little venture.
DISCLAIMER: Hashley Capital Management, LLC; as well as I are not giving any trading advice. All data is historical in nature and is intended for use as an educational tool. Trading in options is risky and 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 and are the opinion of Hashley Capital Management only. If you choose to follow the same path and invest in the strategies and trades used by Hashley Capital Management, LLC after doing your own due diligence, 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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