New Trade Entry : SPX Weekly Credit Spread for August 5 cycle Below is the credit spread position entered a short while ago:
SPX Call Credit Spread Position Entered Thursday, August 22, 8 days prior to expiration. Because SPX is below the 20 day EMA (1681.56), a call credit spread was entered.
SPX August 5 Credit Spread shortly after entry
Time of entry: 10:30 am Eastern. SPX price: 1,654.34 at entry; VIX at 14.78
SOLD August 5 1685 Call. Delta .12 at time of entry
BOUGHT August 5 1695 Call
Credit received: $.90
Maximum margin/risk is $910. Maximum risk is the width of the spread ($1,000 less credit received $90).
Target Gain: $67.50 (75% of credit received). This gain represents a 7.4% gain on actual margin.
Maximum Loss: $90
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.
The basic elements of the OCO order would be:
Part 1: A Limit order to close the position when the debit is .20. This would represent target gain on the position.
Part 2: A Stop Limit order to close the position when the debit is 1.80. Because the initial credit is .90, a debit of 1.80 to close would result in the max loss of (.90).
Again, please check with your individual broker to be sure the OCO is entered correctly; an incorrect OCO entry may result in a premature exit of 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
I am planning to enter an August 5 SPX Iron Condor; I will enter either this afternoon or tomorrow, selling around a .10 for each short strike. I will publish entry details when the position is opened.
As always, stay keen on your risk management and trade carefully.