Most of mine are actually 10%. It is tough, but I squeeze in 3-4 trades a week. I used to enter Monday's but now I find the pricing is better for my strategy between 10am-11am Tuesday mornings for that Friday expiry. I have the discipline to not trade when I don't find a trade that week to fit my criteria. Also, the more expensive the stock (pure dollars) the better premium and R/R. For example NFLX is ~$330 and the strikes increment in $5, but GOOG is ~$1,125 and increments in $5 too. So all else equal, the GOOG options for a given single-strike spread will be worth more for the same "fixed-risk" due to the spread distance. This helps with my R/R. Its not perfect by any means, I have lost, but I am net up. Also, at a high level, if you're trading four (4) ~4:1 R/R trades of equal dollar-size, one trade can blow up a week and you'll be NET 0. Combine that with a "probability" of sub 15% and you've have positive EV. Oh, but that probability is a tricky one.
AAPL at $533.00 Sell 525 Jan18 Put at $3.95 Buy 515 Jan18 Put at $1.69 Risk $1000.00 Reward $226.00 Maximum loss $774.00 Maximum profit $226.00 Question: Is the risk:reward of the above position: A: 4.4:1 (1000:226) ? or B: 3.4:1 (774:226) ? I always go with A.
Has anyone tried weekly options on SPX or SPXPM? Sometimes instead of the next week , I try week after that. How do you calculate risk reward? Thanks
It is B because I think of it as a cash flow problem: You you will receive $226 no matter what. You will pay out max $1,000. So on a cash flow basis, max cash out you're paying if this boy goes belly up is ($1,000 - $226) or a $774 cash loss from your piggy bank. Just my view.
B is correct. You must consider the option premium earned. For instance as volatility increases, your risk reward ratio will improve. If you use the A computation, that is not considered.
The only problem with these positions lately: LOW VOLATILITY. That favors options BUYERS, not sellers. Selling weeklies is a good idea since you are not exposed to a long period of time. If you are going with a single leg (credit spread), it's still a directional position and your success will be based on your ability to forecast changes one week in advance. In contrast, imagine forecasting out for 3 months or more.
Completely agree. I go into a trade (if Iron Condor) admitting to myself I have no idea where this stock could move. But I do know, statistically, it won't move outside a certain range on a 'normal week'. No big FED reports, no earnings, sales releases, product announcements, etc... There was that one time SNDK pre-released earnings....
Vol tends to cluster, and where vol is isn't merely as relevant as IV-RV premium over time. Besides, vol will hit deltaneutral spreads the same as straddles so the point is moot. There is no edge in shorter time to expiry, as it's already accounted for in the premium you receive. However term structure on SPX is steeper on shorter duration, but the flipside is vol of the term structure should the market crash (shorter duration responds most violent)
Interesting to see many different views here.. I like the idea of trading low ROI, weekly credit options spreads because if the entry is done right, and is managed well, the success rate is pretty high, as high as 98%. And if there are losses, it is possible to keep them at under 10% losses each trade. Based on historical statistics, 18-20% nett ROI per annum is achieveable. I know it is not great compared to what some "EXPERTS" are claiming to be able to achieve, but from a conservative trader's standpoint, long term sustainability, high success rate and a good trade management will make sense in the long run. I know a lot of people may think that I am sprouting nonsense, but I m not here to convince people. Just want to find people who are doing the same thing - trading credit weekly options spreads.