The market pulled back a bit today presenting what may be an opportunity. I noticed a little premium for the October cycle that we should try to put in our pockets. It's on the SPX, our favorite index. We currently have, in our CPTI portfolio, the 1280/1290 bear call spread and the 1160/1150 bull put spread. The strike prices below should fit snugly in and around the other strikes without any overlap.
Sell 12 1140 Oct. SPX puts
Buy 12 1125 Oct. SPX puts
Credit of about $.60 ($720)
Sell 12 1285 Oct. SPX calls
Buy 12 1300 Oct. SPX calls
Credit of about $.75 ($900)
Total credit of $1.35 and maximum profit potential of $1,620. Max profit range is 1140 to 1285. Maintenance is $18,000 -- IF you have the right broker. Percentage return on risk is 9.8%.
Remember, October is a five week option cycle. Also, adjust the number of contracts to the size of your account.
These are based on Tuesday's closing prices. The projected premium includes what I believe we can reasonably expect to negotiate from the bid and ask spreads of each option. This is something you should all know how to do. I spend hours teaching this skill at the CPTI seminar. Serious traders should make an effort to attend -- but only if you want to increase the amount of money you make on each trade.
Tomorrow morning, the prices will likely be slightly different. Be careful and don't be afraid to alter your credit limits (up or down a little) as the situation dictates.
Good luck and trade smart.