Trade 35 Cheap, Risk Limited

Terrapin Trader,

 

 

Selling To Buy

Love that picture!

Our trade, like a sheep, has 4 legs, but is not so wooly. We are selling a call spread and the premium thus received will buy a long put spread. The reasons for this trade are that margin is limited to the value of the short spread. The market seems to be teetering around the 7400-7550 level and may be in for a bit more reality. We are of course now in the July expiry cycle.

So- What’s the Deal?

We thus have… selling 7550call @ 39 buying 7600 call @24.5   Then…….   buying 7300 put  @ 38.5  selling 7200 put @25 

The call spread thus sells for (39-24.5)= 14.5, and the put spread costs (38.5-25) = 13.5. Our nett cost is a tiny credit of 1.

How Does this Work?

The market can go up, down or stay where it is. In 2 of those scenarios we do not lose. Should the market go fruit loop and exceed 7550,we start to lose money,and may want to adjust. We make the big bucks though on a market drop where the value of the put spread can hit a maximum 100.   The call spread goes worthless. Margin=1/2max profit(value of 50. The risk in the call spread sold)

Trading Psychology

I have been through the emotional spectrum with BAD trading. What we show here is trading with no risk of ruin. Thus, no need to get into psychology. No need to get philosophical. Nobody is philosophical in victory. The trading industry wants to fry you and then eat you for breakfast, therefore avoiding the pitfalls will save you. Pitfall avoidance is available right here for free.

Published by Terrapin Trader

First found out about options in 1995.From the arcane magazine Exchange and Mart! First trade- a covered call on VOD in 1999. Made 10%,VOD almost doubled. That's when I realised I was not a good trader,and I was forgiven thanks to the amazing world of exchange traded options

2 Comments

  1. I have been otherwise engaged this week but this trade has seen profits in the 5- 10 range but you need to place a limit order to catch them. I still get a bit uncomfortable about limit orders,and on Wednesday this week placed a limit order, took a ‘comfort break’ and the market had move another 20 points in my favour. So my limit of 23 could have been 28.That’s the difference between a rubbish trader like me who is too impatient,and failed 3 times to optimise this week’s trading,where another trader might have waited to open the trades on tuesday, not monday as I did. This was a pure volatility play and still made 100% however

  2. this trade now a credit of 9 as the call spread is now 6, and the put spread is 15. Another winner it seems.

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