New Trade Entry : SPX Weekly Credit Spread for November 3 cycle Below is the credit spread position entered this morning:
SPX Credit Spread Position Entered Friday, November 8, 7 days prior to expiration. The Option Code for this cycle is SPXW131116, expiring November 16. This week the weekly is the regular November monthly cycle.
The 20 day Moving Average was at 1749.45 at the time of entry, with SPX at 1756.80. Because the price of SPX was above the Moving Average, a Put Credit Spread was entered.
SPX November Credit Spread shortly after entry
Time of entry: 10:30 am Eastern. SPX price: 1,756.80 at entry; VIX at 13.53
SOLD November 1720 Put. Delta -.15 at time of entry
BOUGHT November 1710 Put
Credit received: $.85
Maximum margin/risk is $915. Maximum risk is the width of the spread ($1,000 less credit received $85).
Target Gain: $63.75 (75% of credit received). This gain represents a 7.0% gain on actual margin.
Maximum Loss: $85
Since I entered the position, SPX is moving up a bit. Some traders may choose to enter the -1725/+1715 put spread; the current delta of the 1725 put is -.14, and my broker shows a current mid of .85 credit for the spread. At the time I entered my position, the delta of the 1725 put was -.16, so I chose to be on the more conservative side.
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, but I have found that sufficient credit is often available for an entry as late as Friday, depending on volatility levels.
Trade updates will be posted as appropriate.
As always, stay keen on your risk management and trade carefully.