Metrics:
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.
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.
