New Trade Entry : SPX Weekly Credit Spread for the December 1 cycle Below is the credit spread position entered this morning:
SPX Credit Spread Position Entered Wednesday, November 27, 9 days prior to expiration. The Option Code for this cycle is SPXW131206, expiring December 6.
The 20 day Moving Average was at 1781.04 at the time of entry, with SPX at 1806.76. Because the price of SPX was above the Moving Average, a Put Credit Spread was entered.
SPX December 1 Credit Spread shortly after entry
Time of entry: 10:30 am Eastern. SPX price: 1,806.76 at entry; VIX at 12.61
SOLD December 1 1770 Put. Delta -.15 at time of entry
BOUGHT December 1 1760 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
Since I entered this position just a short while ago, SPX has moved up a bit. If the credit has dropped below .75 for the -1770/+1760 spread, some traders may choose to either accept less credit, or sell the next strike up (-1775/+1765). The delta of the short 1775 put is .16, so still acceptable but slightly closer than my comfort zone allows.
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.