Don't Call It A Comeback!

What's up y'all.  I never thought Friday would come!  I accomplished a lot a field work this week trying to break up a good ole boy network of local fraudsters!  Sometimes at my regular job I wonder if anyone actually becomes wealthy without lying, cheating and stealing.  Anyway, enough about federal agent world.  Lets talk about options!

I didn't have a post last week partly because I was dead tired and partly because I was still licking my wounds from getting slammed during the last option cycle.  But like the Six Million Dollar Man (Remember that show?) I'm coming back stronger and faster!  I really believe the adjustment I made from using stocks to sticking with large ETF's will eliminate what happened to me last month.

With that in mind I thought I'd try something a little different.  Instead of picking a spread with the normal monthly expiration, which in this case would have been on June 22nd, I decided to try a weekly option spread.  Yes, you can actually trade weekly options the same way you trade monthly options.  In terms of structuring a spread everything is pretty much the same.  The primary difference is that the time value of the option deteriorates much quicker with the weeklies than with a monthly option.  Weeklies are listed each Thursday and expire the following Friday unless that Friday happens to be the third Friday of the month.

On Monday this week I placed a 171/175 bear call spread on the SPY (S&P 500 ETF).  This spread expired today with SPY never getting close to 171.    After the option expired worthless I was able to come out with a 0.75% profit.  That may seem like a pittance but if I got the same return for four weeks that would be a 3% return for the month which is right where I want to be.

One thing I wanted to clear up is the point when a maximum loss occurs with a credit spread.  In this case my break even point would be 171 plus the amount of premium I received.  My max loss would occur if SPY reached 175.  In this example the max loss would be $400 per contract.

Prior to opening the position my trade simulator stated I had a 96% change of winning the bet.  Those were good odds to me!  That brings me to another point. I read this week that a trader should make sure he's using a trade simulator and not just a probability calculator.  The App Store has a great simulator you can download right to your IPhone.  That's the one I use!

Well that's it for tonight.  I did experiment with another type of options trade today.  I picked up the idea from the web.  To make a long story short I bought 10 SPY 164.5 options (expiring today) at about 10:00AM for $32 a piece and then sold them at 2:00 PM for $52 each!  Not a bad profit for a few  hours.  Before I get into the theory behind the trade I want to experiment a little more first.  Could just be beginners luck!

Enjoy the long weekend everyone!