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pct720
Dec 5, 2013 7:22 PM

SPY Bear Wedge Fall Out Short

S&P 500 index of US listed sharesFXCM

Description

Selling pressure is building in the S&P and using cheaper OTM put options is an excellent way to capitalize on the increasing pressure. Buy OTM put options with deltas around 20-25 and scalp the gamma value, you will only need a small downside move after entry and set a limit order to automatically close the position at the desired profit level.
Here is an example in the SPY using the $170 strike price. (not real values but close)

Desired net profit $100
Dec. 170 Put options, Est price.50 cents
Deltas: 22.25
Gamma: 3.72 (net scalping value)
#number of contracts: 27 (rounded up)
Est trading cost per share: .02 cents
Gross gamma value rounded up: .06 cents
Est negative SPY movement to achieve desired net profit: .27 cents
%of movement to 5 day average true price range: 22%, low percentage, high probability of profit
Entry price at .50 estimated
Limit to sell at .56
Gross profit: $162
less cost: depending upon your trading platform
Net profit: Should be $100 and possibly more depending upon your commissions

That is how I scalp the S&P using cheaper OTM options up or down.


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