Created a putz credit spread on BTU for Sept. Bought the $21 puts Sold the $22.50 puts Used 30 contracts. Credit of $0.27 While a credit of $0.27 may not seem like much to some, it translates into only risking $3,700 to earn a potential $810,... on a deep otm, high probability trade, with a narrow 1.5 low delta strike gap. Created a putz credit spread on LOW for October. This is actually my 1st Oct spread. Bought the $14 puts. Sold the $15 puts. Used 47 contracts. Credit of $0.17 While a credit of $0.17 may not seem like much to some, it translates into only risking $3,900 to earn a potential $800,... on a deep otm, high probability trade, with an extremely narrow 1 point low delta strike gap. Both companies have mixed fundamentals. A blend of stable and not so stable issues. Mostly debt related. Not too surprising given the nature of their businesses. I'll discuss their technicals, probability calculations, and other issues at a later time. I like both their narrow strike gaps of 1 and 1.5 as my goal is for the VIX and IV to have minimal potentially negative influence on my trades during volatile times. Between them both being narrow strike gap, low delta trades, and both being deep otm, it gives me time to close them down if a bad market drops them suddenly, with minimal cash loss.... if any at all (assuming they have not gone ITM prior to closure.) I could have earned a higher credit with a wider strike gap,... but the trade would then not be a stable and manageable as it now is. My preference is for a more stable credit once a trade has been intiated. And again, I'm only risking $3,700 and $3,900 on these deep otm trades, to earn $800 each. ROI = 26 - 27% return. I hope to trasfer these trades to the part 2 thread for further analysis and discussion, if/when it reopens. Putz Master
Just for the record, since I previously shared that I opened a june TASR spread here for $0.70. I just closed it for $0.70. Putz Master
I'm considering creating credit spreads (as opposed to the debit spread parity) to insure against the spy or e-mini s&p... have you or anyone found material success with such a strategy (i.e. annualized return on capital > 50%) Or am I just wasting my time? thanks, Walt
Jones, Consider the return you're seeking and then compare that to what kind of return is realistic. Do you really believe a return anywhere near 50% is a reasonable expectation without a large amount of risk? If that was achievable donât you think youâd have heard about it?
I assume that by saying "insure" that you mean hedging. If so, a spread is a poor way to hedge a position in the underlying... assuming that you're defining a hedge as something that will avoid serious loss should you be directionally wrong. For example, a written call is a hedge for the stock in a covered call position but it has a lousy R/R. A return of 50% will be from being directionally right in your positions, not from hedging.
I generally seek returns of 20 - 28% on my trades. The higher your goal, the more it becomes merely a "potential" return vs a probable one. A goal of 50% is considerable more "potential" than probable. One way to earn a higher "potential" return, is to initiate extremely S-T trades of 1 - 3 weeks. Those always calculate out to very high % returns, but they are quite useless and meaningless, in terms of evaluating your portfolio and performance. Putz Master