This was an order that I had input this morning when going through the my broad market charts. Reasoning is below:
1. Clear support at 352.75 (White line) 2. Long term bullishness on equities, especially if inflation continues. Caveat to this is that with rising rates I do think Tech will feel the pain more than other names. As such this position is 1/2 my usual size. 3. Yellow line (338) identified as recent low, and middle of a lower trading range from Apr / May.
Yellow line then acts as target for the short leg. I.e if I take this trade, the short leg must be below this.
As such, I found the 336/332 spread that paid 10% Return on Margin (or risk) and was below my target.
Set the order this morning and it filled a few minutes ago as the market came down a bit.
Questions, Comments, Leave em below!
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Update with Answers for some of the questions from the comments below:
1. Bought or Sold? This was a credit spread, where I received a credit for accepting the risk of the spread. 2. Credit received = $44 at time of entry (you can get more now as the market pulled back some) 3. Max risk = width of the spread ($4) - Credit received * 100 shares = 4 - 0.44 x 100 = $356
With options trades like this I look to enter with a probability of profit of 80% or greater, which is why I accept a lower risk to reward ratio. In addition, I will use take profits and stop losses to increase this probability of winning and reduce max drawdown.
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Closed this yesterday for a -220% loss (1.62 debit). As it was approaching my short strike. I may re enter this trade with a lower strike, but as I am still a part time trader and this week is busy with work, I closed it while on the road yesterday and didnt bother rolling.
Proof is in the pudding, we cant win every time :)
@clarkshark1, I think he sold that spread if he is "bullishness on equities". So paid 10% return on margin means profit $110 for $100 risked? Just trying to get an understanding of this trade.
NaughtyPines
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@clarkshark1, It's a credit spread paying at least 10% of the width of the spread in credit. Since it's a 4-wide, it probably paid at least a .40 ($40) credit, so he's risking 3.60 ($360) (the width of the spread minus the credit received) to make .40. .40/3.60 = 11.1% ROC. It's neutral to bullish assumption and will make money anywhere above the short option strike (336) (minus the credit received).
Snowy81
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@NaughtyPines, otherwise known as picking up pennies in front of a steamroller, high probability of profit but crushed if it goes wrong