New Trade Entry : SPX Weekly Credit Spread for the February 2 cycle.
Below is the credit spread position entered â€œvery cautiouslyâ€ a short while ago:
SPX Credit Spread Position Entered Friday, February 7, 7 days before expiration. The Option Code for this cycle is SPXW140214, expiring February 14. Please note that while this trade entry is within the guidelines, todayâ€™s move is â€œon the edgeâ€ of a one standard deviation move (16 points). It is a traderâ€™s choice whether to enter this position live or on paper, or remain on the sidelines once again without risking live capital. For anyone considering it as a live trade, it is recommended to keep your position size small.
SPX February 2 Credit Spread shortly after entry
Time of entry: 12:00 noon EST. SPX price: 1,787.41 at entry; VIX at 15.48
SOLD February 2 1735 Put. Delta .12 at time of entry
BOUGHT February 2 1725 Put.
Credit received: $.75
Maximum margin/risk is $925. Maximum risk is the width of the spread ($1,000 less credit received $75).
Target Gain: $56.25 (75% of credit received). This gain represents a 6.1% gain on actual margin.
Maximum Loss: $75
Having said that, it is a traderâ€™s individual decision whether to wait for target gain, or max loss, on any position . Trading is a blend of oneâ€™s individual style, risk tolerance, and intuition. This combination can help reach your annual trade plan results. I recommend following your own trade style; there is nothing wrong with exiting a position early. Remember with weekly trades, there are 52 opportunities in a year to trade so it is important to be comfortable with your trade size and position. Remember, trading is an art, not a science.
Below is the SPX 6 month chart showing the strikes entered:
SPX 6 month chart:
Some traders may want to wait until closer to the end of the day to enter; if thereâ€™s even a slight pullback the 1730/20 spread may reach .75.
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 only variation from the original guidelines is the day of entry; this can vary depending on volatility and market conditions.
Trade updates will be posted as appropriate.
As always, stay keen on your risk management and trade carefully.