New Trade Entry : SPX Weekly Credit Spread for March cycle Below is the credit spread position entered a short while ago:
SPX Credit Spread Position entered Thursday, March 13, 7 days prior to expiration. The Option Code for this cycle is SPXW140322, expiring March 22. Because this is the regular monthly cycle, the last day to trade this cycle is Thursday, not Friday.
The 20 day Moving Average was at 1853.49 at the time of entry, with SPX at 1864.67. Because the price of SPX was above the Moving Average, a Put Credit Spread was entered.
SPX March Credit Spread shortly after entry
Time of entry: 11:00 Eastern. SPX price: 1,864.67 at entry; VIX at 14.73
SOLD March 1815 Put. Delta -.14 at time of entry
BOUGHT March 1805 Put
Credit received: $.80
Maximum margin/risk is $920. Maximum risk is the width of the spread ($1,000 less credit received $80).
Target Gain: $60.00 (75% of credit received). This gain represents a 6.5% gain on actual margin.
Maximum Loss: $80
Below is the 6 month SPX chart showing the strikes entered:
SPX 6 month Chart:
As of this writing, the next higher strike, the 1820 short put, shows a delta of -.15. Some more aggressive traders may select this higher spread (-1820/+1810) for a higher credit, but I am being just a bit more conservative.
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.