http://finance.yahoo.com/echarts?s=SPY+Interactive#{"range":"2y","allowChartStacking":true} Brexit, interest rates and the Fed etc. etc. etc. The market has been knocking against 215 for 2 years... it doesn't want to go any higher. It's summer time. Time to pack it in until fall. Trade: with SPY at 206.52 Sept 215/205 bear put spread at a net debit of $497 Price................ Profit / Loss.......... ROI % 150.00.................. 503.00............. 101.21% 175.00.................. 503.00............. 101.21% 200.00.................. 503.00............. 101.21% 205.00.................. 503.00............. 101.21% 210.03..................... 0.00................. 0.00% 215.00................. (497.00)........... -100.00% 225.00................. (497.00)........... -100.00% 250.00................. (497.00)........... -100.00% 275.00................. (497.00)........... -100.00% Prob = 47% Expectation = .47(503) - .3(497) -.23(500) = 236 - 149 - 115 = -28
Alternate trade: Sept 215/220 bear call spread for a net credit of 139 Price............... Profit / Loss......... ROM % 154.89................. 139.00............. 27.80% 177.94................. 139.00............. 27.80% 202.21................. 139.00............. 27.80% 215.00................. 139.00............. 27.80% 216.39..................... 0.00.............. 0.00% 220.00................ (361.00)........... -72.20% 226.47................ (361.00)........... -72.20% 250.74................ (361.00)........... -72.20% 275.00................ (361.00)........... -72.20% Prob = 70% Expectation = .7(139) - .22(361) - .08(181) = 97.3 - 79.4 - 14.5 = 3.4 Thus it makes little difference if you choose a credit spread or a debit spread in terms of expectation. Between these two trades there is a slight 'edge' towards the credit spread.
Together the trade would "almost" be a box - correct? A box being similar put and call strikes. One thing I learned on ET that I would never have figure out on my own is that both sides of a box are identical even though one is ITM and the other OTM. PS ........ Selling SPY credit spreads gives me the willies.
No: A box is a bullish spread and a bearish spread together. These trades are both bearish. http://www.theoptionsguide.com/box-spread.aspx