SPY 10am Weekly – Chapter 2

by Jeff on August 25, 2010

In Chapter 2 of the SPY 10am Weekly video, I show how turning a one sided Credit Spread into an Iron Condor can boost you profit while not affecting your risk – sort of.

An Iron Condors is simply (simply? It took me a couple of years to really understand an IC) a Bull Put and Bear Call Credit Spread on the same underlying with the same expiration date. Most, if not all brokers will only hold the spread amount as a sort of margin requirement (the cash will not be available to you until after the trade is closed and settled – usually the day after you close it) for one side of the trade. In the case of the Bear Call I did on SPY on Tuesday 8/24, TOS removed $2,000 from my “available to trade” bucket (but remember I also collected a cash deposit of $280) – just in case the trade went really bad, that is the maximum that I can lose. Thus, defined risk!

When I added the -103/+101 Bull Put (making the Iron Condor), TOS did not require another $2,000. How sweet it is!

Now, did I add any risk? No, as I stated above, and yes. Why yes? Because when I had the Bear Call I only had upside risk. Now, with the Bull Put, I also have downside risk. Hey, nothing is free. BUT – only 24 hours to go. Another possible $240. Hmm… $10/hour. Hmm…

OK, so watch the video on the “New Downloads” section on the far right. It’s called (obviously) SPY 10am Weekly – Chapter 2 (duh).

◄ Jeff ►

Tagged as: bear call spread, bull put spread, Iron Condor, Weekly Expiration

  • http://theoptionguru.com/blog Jeff W

    Mike,nnMax loss would have been $2,535. I sold it for a loss of $1,710 – a big difference. Yes, I could have waited until today’s employment numbers, but with expiration today, and me needing a 20 point or better move down on the S&P – well, I figured that the news today would have to be pretty bad to do that.nnOf course, I may be wrong – heaven knows I have been wrong in the past.nnNow to me, the news will be bad. People are still losing jobs at an alarming rate, taxes are going up next year, health care is up another 14%, home values are still low or getting lower, nobody’s buying cars, productivity is dropping, government debt is increasing, etc. But the market seems to shrug it off. Yesterday they told us it’s good news that only 470,000 people filed for unemployment. That’s more than 1/4th the population of Columbus, OH! Isn’t that a lot? They say it’s better than 500,000? I guess it is. Reason for celebration? Not in my book, but there are a lot smarter people out there than me – I think.nnOverall, I still see a double top and a reverse head and shoulders on the SPX. But, in order to make those formations there have to be bearish and bullish days and mini-trends.nnOverall on the weeklys? Not too hot, really. I was up $180 before this week. Reason? Not following rules mostly. I increased my exposure/risk this week with 15 lots. I also doubled down with a weekly on IWM – I won’t be doing that again.nnJust gotta stick with the rules.nnu25c4Jeffu25ba

  • http://theoptionguru.com/blog Jeff W

    Mike,nnIf you haven’t noticed, I am the most frequent violator of my own rules and often suffer severe punishment because of it. I believe, however, that yesterday is an exception. With that in mind, it’s back to PPS with conformation – or a bear/bull flag (although with weeklys there isn’t much time for flags to form).nnu25c4Jeffu25ba

  • ML

    May I add a double ouch… I’m having the same pain. Are you going to pay more attention to the PPS or still add S/R in your judgement?

  • http://theoptionguru.com/blog Jeff W

    Mike,nnMan, did I take it on the chin! It’s too late to roll and I won’t wait for expiration so I closed it today (it was a 107/109). Ouch!nnu25c4Jeffu25ba

  • http://theoptionguru.com/blog Jeff W

    Tom,nnI used to use the Prop of Exp column, but found delta to be close enough and it saves me a column for other useful data.nnWell, I’m not happy about my 107/109 and I closed it this AM for a huge loss. September has a big hole to dig out of. I also had a Bear Call open on IWM that I lost big on too. I am not, however, going to let that deter me from getting in again next week. I had a lot of negative delta that this bull move crushed. At least my Conservative Account is doing quite well with this move.nnu25c4Jeffu25ba

  • Mike

    JeffnJust curious if you are rolling your -108 short SPY or are you planning on taking the loss if it expires ITM. Thanks

  • Tom Clark

    Jeff,rnrnHave you considered using TOS’s Probility of Expiring metric instead of delta? Slight difference, don’t know if its significant or not.rnrnBTW, be sure to post how you handled your SEP1 107/109 spread. I had the 109/111 on. Ouch!rnrnTom C

  • http://theoptionguru.com/blog Jeff W

    Michael,nnThanks for the comment. The only delta I look at is the short option since that gives me an idea of the probability of the option expiring OTM. If I look at the entire spread, if skews the number in an unfavorable direction.nnu25c4Jeffu25ba

  • Michael

    Hi JeffnThank you for taking the time to perform and post the webinar. I have learned a great deal from the information you have provided. In your analysis you were focused on the delta of the sold option. Do you ever make entry decisions based on the delta of the entire vertical spread?

  • http://theoptionguru.com/blog Jeff W

    Darjohn24,nnThanks for the question, and it’s a good one. I assume you are talking about AAPL and you are right in that gamma is what’s producing this behavior.nnThe closer you are to expiration, the more gamma increases for ATM options. Thus your short option, which will expire this Friday, is fluctuating in price more so than you long SEP option. Also, when volatility is low, as is the case (relatively) for AAPL right now, gamma has an even more pronounced affect on ATM options and will change the delta dramatically if the price moves.nnIn the case of Calendars using weekly expirations, the best bet is to hold (provided price is cooperating) until late Thursday or early Friday AM to get out. I actually rolled my weekly on AAPL 4 times, since the back expiration was 4 weeks out. I didn’t get rich on the trade and I probably won’t do that again.nnRegardless, there is very good money to be made trading options and ‘scalping gamma’ on the weeklys. In a way, the u25c4SPY 10am Weeklyu25ba strategy takes advantage of that using Credit Spreads. Because the hold time is so short, the short strike is very near the money and takes advantage of time decay and a higher gamma.nnIf you are interested, Jeff Augen wrote a book called “Trading Options at Expiration”. I am still churning through that book (he’s a very technical person) and hope to pick up even more techniques from him in the future.nnu25c4Jeffu25ba

  • Darjohn24

    Jeff, You do an excellent job with the blog and I really enjoy your posts and videos. My question is related to the single and double calendar spreads, I am currently in a 240 sep1wk/sep10 put calendar and I am wondering is it normal when short contract is a weekly option that your pnl fluctuates seemingly more erratically because of the higher price sensitivity (gamma) on weekly options? Do you typically have to hold your calendars on weekly options until Friday?

  • http://theoptionguru.com/blog Jeff W

    Mike,nnI understand how you feel. You just need to build up your confidence.nnYou know that any trade you do has a risk/reward ratio. Yes, you can lose more than you can gain, but we try to keep the PROBABILITY in our favor. If you have a 70-80% probably that you will win on a trade, then you should feel comfortable taking it.nnOne key is to make sure that you are adhering to money management rules that you should have in your Trading Plan. As an example, if at this point you are not sure about the SPY 10am Weeklys, then either A) Trade them in a paper account for a few months or B) just do 2-3 lots and not the 10 that I talk about. Make sure that you stick to the rules. Keep as trade journal and include your feeling when you decide to open and how you are feeling each day the trade is open.nnIf you have a TOS account, I think on Mondays they have a shrink chat guest that you could listen to that may give you some insight into your trading confidence. Or, as I have done, get the book Trading in the Zone. by Mark Douglas – this may help.nnGood luck and keep in touch.nnu25c4 Jeff u25ba

  • Mike

    JeffnI know that these trades are high prob. but sometimes I can’t pull the trigger because I know if I am wrong just 1 time it wipes out 10 good trades profits. How can I get around my trepidation?

  • http://theoptionguru.com/blog Jeff W

    ML,nnYou caught me – and you’re right to challenge the move. You’re also right on the unwritten u25c4SPY 10am Weeklyu25ba methodology regarding support/resistance – also a favorite indicator for me. I didn’t say anything on the video, but my eye caught the low that morning matching the low on 5/25 (I don’t believe it’s signaling a change in direction, just a short relief bounce). Maybe I was looking for a reason, since I did have that in the back of my mind when I opened the BC on the 24th. I only was looking for 1 day.nnBefore I hit the road today, I will be putting in my 5u00a2 limit orders on both shorts. GDP on Friday could make an impact on the market, so I definitely want to be out by then. The only way I will accept max loss is if there is an extreme move and my PC crashes (or I fall asleep).nnSo far the futures are behaving nicely. Come on u2665Thetau2665u203cnnu25c4 Jeff u25ba

  • ML

    You did not follow your PPS rule on the put credit…. are you also using support/resistance? Is the 10AM rule still ‘strictly’ enforced. Do you have an adj plan or are you willing to take max loss? thx.

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