Sunday, January 24, 2010
Monday
Since vol is up and I think the top is in, I'm looking at selling the SPY 115/116 call spread. Using closing prices it's only about a .19-.20 credit, so risking 4 to get 1. However, I don't care what the risk/reward or percentages are as much in this case simply because I believe the top is in. I'm also considering selling the 115 now and waiting to purchase the 116 after vol comes down or if the market moves down some more. My risk is that market rallies back up to the top. I'm willing to take that risk. Any thoughts?
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The SPY call spread I was interested in at 115/116 was only going to be a credit of .16, so what I did was sold naked $117 calls for .18. This carries theoretical unlimited risk as opposed to a spread, but it's in line with my gut that a top was put in. Even if a top is breached, I still have another 20 S&P points buffer up to 1170. The margin required was roughly $13,000 for 20 contracts. That's a return of (.18x2000)/13000 = 2.7% for one month on what I consider a low risk/high probability bet.
ReplyDeleteThat being said, I didn't even run the probabilities on that trade, it's just a gut trade. My TOS account is not active yet until they get my signature card, can you run the probabilities of the $117 calls expiring worthless with Friday's vol versus today so I can see the differences?