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Shortputvertical

OPENING (IRA): SPX NOVEMBER 20TH 2935/2985 SHORT PUT VERTICAL... for a 5.10 credit. Notes: Putzing with a "10%-er." It's a 10%-er due to the fact that the credit received is 10% of the width of the spread. Here, I'm receiving 5.10 on a buying power effect of 44.90, which would be 11.36% ROC at max as a function of buying power effect (5.68% at 50% max) or 92.14% annualized at max, 46.07% at 50% max. A comparable SPY naked short put would be at the November 20th 299 strike, paying 2.87 as of the writing of this post on a buying power effect of 296.13, which is nearly six times the buying power effect of the 50-wide SPX spread. Because it's a spread and SPX is a cash-settled instrument, I won't be able to "wheel" this trade as I would a SPY short put (i.e., I won't be able to take assignment and then sell a call against), so I can either (a) sell short call vertical against to defend or (b) manage it at 50% max or take it off at a given loss metric, such as 2 x the credit received. I'll be doing the latter here. The comparable SPY setup would be a 5 wide, paying at least .50 on a buying power effect of 4.50.
SP:SPX
by NaughtyPines
7
EDUCATION: SPY SHORT PUT OR SPX SPREAD? PROS AND CONSPictured here is an SPX short put vertical I recently put on as an alternative to going SPY short put in cash secured environment. (See Post Below). When do one as opposed to the other and how should I manage each? First, let's compare the metrics of the two strategies, both of which are neutral to bullish assumption: they will make money at expiry if SPX/SPY goes up, sideways, or down, as long as it doesn't go so far down as to finish below the setup's break even. Currently, a "ten percenter" in the SPX November expiry (i.e., a spread paying at least 10% of its width) would be the 3080/3130, paying 5.00 even as of Friday close on a buying power effect of 45.00 ($4500), with a 3125 break even. The buying power effect is the same regardless of whether it's on margin or in a cash secured environment. A SPY short put with a similar break even (and therefore a similar probability of profit) would be the November 20th 315, paying 3.05 as of Friday's close with a break even of 311.95. Here, the buying power effect is different on margin versus cash secured. On margin, it should be approximately 20% of the short put strike or ~63.00 ($6300); in a cash secured environment, it is the short put strike (315) minus the credit received (3.05) or 311.95 ($31195). Buying Power Effect: On Margin: $4500 for the short put vertical, $6300 for the short put. Cash Secured: $4500 for the short put vertical, $31195 for the short put. Return on Capital: On Margin: 5.00/4500 = 10% for the short put vertical; 3.05/63.00 = 4.84% for the short put Cash Secured: 10% for the short put vertical; .98% for the short put. Given the expensiveness of going short put and the lower return on capital, why would I ever opt for that strategy over the short put vertical with its lower buying power effect and higher return on capital? 1. I am looking to acquire shares in the underlying, but don't want to reduce credit received by buying a long leg. In this particular example, I will never pick up shares via an SPX spread since it is cash settled.* 2. I am looking for flexibility in managing the strike price at which I'm potentially assigned shares. The short put can be rolled for additional credit, reducing cost basis further, or the strike improved via roll to change the strike price at which I'm assigned shares. The SPX spread won't roll well for a credit if tested. Trade Management: Short Put: Generally: Assuming a 45 day cycle, take profit at 50% max, take loss at 2 x credit received, or otherwise manage at 21 days until expiry (i.e., close out or roll out for a credit), whichever comes first. In cases where I'm looking to acquire shares in the underlying, however, I'm more likely to run the short put to approaching worthless, at which point it will be fairly clear that I'm not going to be acquiring shares in that cycle. There's little point in tying up buying power further to milk what little is left out of the option, particularly if there is oodles of time left until expiry. If it's in the money toward expiry, I compare and contrast whether I should roll out the short put "as is" for additional credit, versus allowing assignment of shares and then covering the shares with a short call. I generally go for the option that yields a higher credit. Short Put Vertical: Assuming a 45 day cycle, take profit at 50% max, take loss at 2 x credit received, or otherwise manage at 21 days until expiry (i.e., close out or roll for a credit), whichever comes first. * -- I can naturally sell a SPY spread and take on shares if the short put is broken which is another option to consider if I'm comfortable with and am able to take on shares at the short option leg price.
SP:SPX
by NaughtyPines
1
OPENING: /CL MAY 14TH 51/52 SHORT PUT VERTICAL (LATE POST)... for a 1.60 credit. Notes: Filled this on the 27th as a delta hedge against January short call positions, one or more of which may require duration extension into February. Longer-dated than I'd like, but going out to where the at-the-money short straddle pays greater than 10% of the underlying (which actually starts in April) and religiously collecting at least 1/6th the width of the spread. Scratch on the whole works at 23.00.
CLong
by NaughtyPines
OPENING: /CL APRIL 16TH 51.5/52.5 SHORT PUT VERTICAL... for a 1.60 credit. Notes: A delta hedge out in the expiry where the at the money short straddle is paying more than 10% of the value of the underlying. Scratch at 21.40. Ultimately, the hedge may be unneeded if the entirety of the January call side can be pulled off for approaching worthless (which is where most of the short delta lies), but one never knows. As a standalone trade, a 79% probability of profit setup paying 1/6th the width of the spread.
CLong
by NaughtyPines
OPENING: /CL MARCH 17TH 52/53 SHORT PUT VERTICAL... for a 1.60 credit. Notes: A delta hedge to replace the January cycle (29 Days 'Til Expiry) short put verticals I pulled off at near worthless earlier today. Being a bit more religious about collecting 1/6th the width of the spread than previously (for an iron condor, I'd be collecting 1/3rd the width of the widest wing for the entire setup) and going out a little farther than time than usual to avoid potential whip in shorter duration. Scratch at 20.00 even. Basic strategy on any tested call side will be to roll out for credit/duration toward end of cycle. As before, as a standalone trade, this isn't terrible: 80% probability of profit, .80 ($80) at 50% max, break even at 52.84.
CLong
by NaughtyPines
OPENING: CL1! DEC 16TH 49/50 SHORT PUT VERTICAL... for a 1.50 credit. Notes: A delta adjustment trade in the December cycle. With the position skewing short and in anticipation of stripping off November's long put verticals (thus reducing position long delta) in short order, selling long delta here to all but return the entire spaghetti-works to net flat delta. Scratch at 9.20 versus current position value of 7.30. I may work this position across cycles rather than closing it down at month end since I sold hedges out in January and February, but we'll see how it goes ... .
C
by NaughtyPines
NFLX will continue to rise till earnings. I think NFLX is going to keep heading up till earnings. It has a pretty interesting pattern of doing so. It's above it's 200, it's 50dma recently crossed upwards. So it seems like a good candidate for a neutral to bullish strategy. I'm thinking Short Put Vertical. (which would as far as I can tell mean that as long as the stock stays above the midpoint of my strikes, I can win max profit.) My ThinkOrSwim says the Volatility Index for this mofo is almost 50%. Because of the high volatility, even ITM spreads are worth some money. With todays 377ish close, the 355/60 spread can be sold for 165. That's not bad.
NASDAQ:NFLX
by Lothar_of_the_Hill_People
TRADE IDEA: VIX MARCH 21ST 15/18 LONG PUT VERTICALMetrics: Probability of Profit: 85% Max Profit: $65/contract at the mid* Max Loss: $235/contract Break Even: 15.65 * -- I usually like to get these filled for 2.25 or less. Notes: A slight variation on a term structure trade, which ordinarily uses the corresponding /VX futures price for guidance as to where to set up your spread. Here, instead of using the March /VX future price (currently at 14.57), I'm looking at where VXMT** is currently (at 15.30). I then look for an expiry in which (a) I can set up a spread with a break even at or above where VXMT is; and (b) that costs <2.25 to put on if a long put vertical or for which I receive a credit of >.65 if a short call vertical.*** Naturally, 104 days until expiration is an awfully long time to wait for your candy. Generally, however, I layer these types of setups on over time and take them off at 50% max profit, which generally occurs with about one-half the original time remaining for the setup (in this case, about 50-odd days). ** -- VXMT measures expected volatility in the S&P 500 over a 6-month time horizon. *** -- The max profit/max loss metrics are the same, regardless of which spread you use. For example, the 15/18 short call vertical brings in .65 at the mid, has a max profit potential of $65/contract, a max loss metric of $235, and the very same break even of 15.65 as the long put vertical.
CBOE:VIXShort
by NaughtyPines
3
OPENING: SVXY SEPT 15TH 79/81 SHORT PUT VERT... for a 1.03 credit. I put this on "on the fly" on Friday. Basically, I'm looking to get a credit equal to max loss with these, so I put this in-the-money short put vertical on for a 1.03 credit with a buying power effect of .97 (risk one to make one) with the notion that contango* will erode the position running into expiry ... . Notes: Will look to "money, take, run" at 50% max. Currently, you can still get into a similar play; it'll just be lower down the totem pole: the Sept 15th 74/76 is paying 1.05 at the mid with a buying power effect of .95. The underlying is fairly illiquid, so don't settle for anything less than the mid price ... . * -- In the case of SVXY, an inverse, contango erosion causes the underlying to increase in value.
CBOE:SVXYLong
by NaughtyPines
3
TRADE IDEA: SPY APRIL 21ST 230/233 SHORT PUT VERTThis is a defined risk variation on a Tom Preston (Dough/TastyWorks) play, where he sells the monthly SPY put with a 68% probability of expiring worthless. He generally does this on the Monday following the monthly opex; I'm doing it a few days early ... . While I'm using it as a delta hedge of a core SPY position (I'm in need of a touch of long delta), it's also fairly good as a stand alone trade: Metrics: Probability of Profit: 71% Max Profit: $51/contract Max Loss/Buying Power Effect: $249/contract Break Even: 232.49 Theta: .36 Delta: 8.53 Notes: I will watch this position against the backdrop of my SPY core position, which I look at each week to "tweak" back to between delta neutral and slightly delta short, generally by rolling sides toward current price where that makes sense (i.e., it pays enough and there is enough time remaining in the setup). If I skew back to net delta long, I will look at legging into a short call side to complete an iron condor, but will otherwise leave it alone running into expiry. I would note that the implied volatility isn't great here (an understatement) ... .
AMEX:SPYLong
by NaughtyPines