New Trade Entry : SPX Weekly Credit Spread for July 1 cycle. Below is the position entered earlier today:
SPX Position Entered Thursday, June 27, 8 days prior to expiration. The Option Code for this cycle is SPXW130705; it expires Friday, July 5.
The 20 day Moving Average was at 1619.96 at the time of entry, with SPX at 1614.12 Because the price of SPX was below the Moving Average, a Call Credit Spread was entered.
SPX Jul 1 Credit Spread shortly after entry
Time of entry: 12:30 pm Eastern. SPX price: 1,614.12 at entry; VIX at 16.97
SOLD July 1 1650 Call. Delta .12 at time of entry
BOUGHT July 1 1660 Call
Credit received: $1.00
Maximum margin/risk is $900. Maximum risk is the width of the spread ($1,000 less credit received $100.
Target Gain: $75 (75% of credit received). This gain represents a 8.3% gain on actual margin.
Maximum Loss: $100
Please note: For those entering this position today, please keep watch on the delta of the 1650 call. If the delta reaches 15 or higher, I recommend selling a lower delta, and moving the spread out to the -1655/+1665 strikes. More aggressive traders may choose to enter at a higher delta, but I do not recommend taking on the additional risk for a bit more credit. I entered this position earlier than I normally would today, because I will be away from my trading platform for a few hours this afternoon and felt comfortable selling the 1650 strike with a delta of 12 at the time of entry.
I recommend that a "good to cancel" order be entered to close the position for either target gain or max loss. This can be done using an OCO (one-cancels-other) order on most broker's platforms. Each broker is a bit different; I suggest that you contact your broker for the proper setup of the OCO. Having this in place removes the emotions that can sometimes cloud a trader's judgement, and reduces the amount of time needed to be at your computer monitoring the position.
For those unfamiliar with this trade, the guidelines were published on May 12, 2013. The article can be found here: Link to Articles
The original guidelines call for a Tuesday entry, however, with the volatility at this level, there is usually sufficient credit to enter any day up until Friday.
I decided not to enter a RUT Credit Spread for this cycle; tomorrow is the day the RUT is being rebalanced (stocks being removed/added), and this could very likely cause some volatility.
It is also worth mentioning that next week is a shortened trading week. The market closes early on Wednesday, and is closed Thursday for the Fourth of July holiday. Friday before the market re-opens, the monthly Employment situation report comes out. We will likely exit this position even for a reduced target by Wednesday.
I will post an update as the trade progresses.
As always, stay keen on your risk management and trade carefully.