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Shortputvertical

Opening* (Small Account): SPY July 23rd 393/398 SPV**... for a .54 credit. Comments: While I'm waiting on various setups I've got hanging out there, I figured I'd start up a thread of sorts for a small account that is on the other end of the account-size spectrum from my IRA/retirement account posts: a small account I opened for a future grandkid or grandkids. There isn't much in it at the moment (around $2000), so naked short putting most instruments will be out of reach. Consequently, I'll have to use other tools in the tool kit. Here, to emulate dollar cost averaging into the broad market, I'm using a short put vertical in SPY and shooting to receive at least 10% of the width of the spread in credit, much as I've done with SPX 50-wides in my retirement account. These are just a smaller version of those. Right out of the box, however, I ate up about 22% of the overall buying power in the account (($446/$2000) = 22.3%), so the other thing I won't be able to do here is put on a ton of trades in it; it'll basically accommodate around four 5-wides max at the moment, assuming I wanted to be super-aggressive with it and deploy all of the available buying power. One thing you'll notice by looking at the metrics of the spread, however, is that I could consider just doing one of these at a time and potentially still beat long-term average broad market returns. Even at 50% max, the ROC is 1.27% as a function of net liquidity -- 10.3% annualized. Consequently, for those just starting out with 40 years to go until retirement, this is one thing to consider; how "big" you want to go in terms of total buying power deployed, particularly here where we're bumping up against all-time-highs in an implied volatility environment that is on the low end of its 52-week range (i.e., not the greatest time or "spot" in which to start selling bullish assumption premium in the broad market). Here, though, since any future grandkid is basically playing with "house money," I'll look to be a tad more aggressive than that on percentage of buying power deployed. The metrics of this particular spread: Max Profit: .54 ($54) Max Loss/Buying Power Effect: 4.46 ($446) ROC at Max: 12.1% ROC at 50% Max: 6.1% ROC at Max/50 Max as a function of Net Liquidity: 2.54%/1.27% ROC at Max/50 Max as a function of Net Liquidity Annualized: 20.6%/10.3% As with a lot of my trades, I'll look to take profit at 50% max and redeploy in the expiry nearest 45 days until expiry. On the take loss side, I'll look to take my lumps at 2 x credit received. * -- This is a late post. The spread was opened on June 4th, and is currently worth .3750. ** -- Short Put Vertical.
AMEX:SPY
by NaughtyPines
Opening: AMC July 16th 5/18 Short Put Vertical... for a 1.40 ($140) credit. Comments: Okay, okay, okay ... . I'll bite. With 30-day implied volatility at a whopping 341%, taking a really conservative approach to this by selling the 5 delta strike and buying the 0 (it's probably greater than 0, but they've rounded to the nearest delta). By buying the cheap put (it costs .08 here), I define my risk, limiting my max loss to the width of the spread (13), minus the credit received (1.40) or 11.60 ($1160) without giving up much in credit were I to just sell the 18 put. ROC at max: 12.1%; 105.2% annualized. Just looking for a money, take, run on this ... .
NYSE:AMCLong
by NaughtyPines
Opening (IRA): SPX June 18th 3845/3895 Short Put Vertical... for a 5.10 credit. Notes: Probably should wait until I get back from vacation, but wanted to take advantage of this down move a little bit here. Selling the 18, buying the 15 delta here to get into a spread paying at least 10% of the width in credit. For smaller accounts, the correspondent SPY short put vertical would be the June 18th 382/387 -- selling the 17 and buying the 14, currently paying .52 at the mid. We'll see how things go, but will start to look at taking profit at 50% max; managing loss at 2 x credit received.
TVC:SPX
by NaughtyPines
4
OPENING (IRA): SPX JANUARY 29TH 3290/3340 SHORT PUT VERTICAL... for a 5.10 credit. Metrics: Max Profit: $510 Max Loss: $4490 Break Even: 3334.90 Delta/Theta: 2.6/6.75 ROC: 11.4% at max; 5.7 at 50% max; 83.22% annualized at max; 41.61 at 50% max. Probability of Profit: 87% Notes: A 10%-er in the expiry nearest 45 days in duration, opened late in the session. For smaller accounts, consider selling a short put vertical in SPY where the credit received is at least 10% of the width of the spread.
SP:SPX
by NaughtyPines
OPENING: SPY JANUARY 15TH 325/330 SHORT PUT VERTICAL... for a .52/contract credit. Notes: Opened a 10%-er (credit received is 10% of the width of the spread) in the expiry nearest 45 days 'til expiration. Will manage at 50% max or 2 x credit received. For larger accounts, consider going wider with the SPY spread, or spreading /ES (e.g., January 15th 3220/3270, paying 262.50) (the equivalent of a 5 x 5* SPY) or SPX (e.g., January 15th 3275/3325, paying 5.10) (the equivalent of a 10 x 5 SPY).** * -- 5 contracts of five-wide spreads. ** -- 10 contracts of five-wides.
AMEX:SPY
by NaughtyPines
2
EDUCATION (IRA): SPY SHORT PUT VERTICALS VS. SHORT PUTSShort puts or short put verticals in a cash secured environment? Here's a comparison and contrast of the advantages of going short put vertical over naked put. Pictured here is a 50-wide* SPY short put vertical in the January monthly with the short option leg camped out at the 17 delta and the long 50 strikes out from there. Here would be the metrics for the short put and the 50-wide: Stand-Alone 332 Short Put: Buying Power Effect (Cash Secured): 328.65 Break Even: 328.65 Max Profit: 3.35 Return on Capital at Max: 3.35/328.65 = 1.02% Return on Capital Annualized: 1.02% x (365/50) = 7.45% Trade Management Advantages/Disadvantages: Easier to roll for a credit 282/332 Short Put Vertical: Buying Power Effect (Cash Secured): 47.27 Break Even: 329.27 Max Profit: 2.73 Return on Capital at Max: 2.73/47.27 = 5.78% Return on Capital Annualized: 5.78% x (365/50) = 42.19% Trade Management Advantages/Disadvantages: Difficult to roll for a credit on break even test Seems like a no brainer to go with the short put vertical over the short put every time: The buying power effect is less than 15% of the naked short put while the ROC%-age at max is 81.5% of what you'd get for "going naked." That being said, this doesn't mean that you should deploy 100% of your buying power in short put verticals, since there is one aspect of these that people overlook, and that is assignment risk on the short option leg,** so you either (a) have to keep buying power free in the eventuality that price does break your short option leg and/or break even; (b) cut your losses short at particular loss metrics;*** and/or (c) trade cash-settled products that don't have that risk. Consequently, when I'm on an acquisitional bender, I tend to take a short of hybrid approach with spreads, deploying them with the notion that I'm fine with acquiring shares at the short option leg price (minus any credit received, of course), but limiting my max loss in the event that the underlying totally breaks down below the long option leg. On assignment, this makes my selling call against task potentially easier because the ground I have to make up is limited to the width of the spread. For example, SPY goes to 250. In the case of the spread, I exit the long option at or near max (closing for a 32.00 credit -- the difference between the long option strike and current price) and get assigned shares at the short option strike (a 332.00 debit): I can sell call against at current price + the width of the spread or at the 300 strike and still get out of the trade profitably if SPY pops back up to 300.**** With the short put, I'm generally forced to sell call against at or above my cost basis if I want to potentially exit the trade profitably, which would be around 329 here in this example. * -- I'm using a 50-wide here just for comparison and contrast purposes, put there is actually a "sweet spot" where ROC%-age on the spread is the highest. I generally start out with the 16 delta for the short option leg (it's the 2 x expected move strike) and then fiddle with the long to get 10% or greater ROC%-age for the spread. I'm using SPY here, but the general principles apply to any underlying. ** -- This is naturally only in products like SPY, QQQ, IWM, etc. which are not cash-settled. SPX, RUT, and NDX are cash-settled, so the risk of assignment isn't an element of those trades, which is why I go for those products over the exchange-traded funds when I'm not interested in taking on or risking taking on shares in the underlying. *** -- I have previously used 2 x the credit received as a good rule of thumb. **** -- Here's the math: On fill: 2.73 credit + 32.00 credit for closing the long put at or near max - 332.00 debit for the assignment at the 332 strike = 297.27. I will also get a credit for selling a call the shares I was assigned. I can actually sell a call at the 297 strike and still be profitable on a finish above 297 because of this.
AMEX:SPY
by NaughtyPines