Cabot Options Institute Quant Trader – Alert (SPY)
SPDR S&P 500 ETF (SPY)
Our August 18, 2023, SPY 462/466 bear call spread is now in profitable territory, so for those who wish to take off the trade for a small profit, especially given the overall price action of the trade, well, no one is going to scoff at taking some profits off the table. There is a good chance I’ll be taking the trade off the table soon (possibly even later today) … and as always, when I decide to close the trade, I’ll send you an alert with all the details.
As for today’s new trade, September expiration is fast approaching (42 days until expiration), and with implied volatility kicking up over the past week, at least a little, I want to sell some premium. So, I’m going to start with another bear call spread in SPY and add some additional positions over the coming days.
IV: 16.8%
IV Rank: 14.2
Expected Move (Range): The expected move (range) for the September 15, 2023, expiration cycle is from 436 to 466.
Call Side:
The Trade
Simultaneously:
Sell to Open SPY September 15, 2023, 470 call strike
Buy to Open SPY September 15, 2023, 475 call strike for a total of $0.65. (As always, the price of the spread will vary, so please adjust accordingly.)
Delta of spread: -0.07
Probability of Profit: 85.07%
Probability of Touch: 28.40%
Total net credit: $0.65
Total risk per spread: $4.35
Max return: 14.9%
Risk Management
Since we know how much we stand to make and lose prior to order entry, we can precisely define our position size on every trade we place. Position size is the most important factor when managing risk, so keeping each trade at a reasonable level allows not only the Law of Large Numbers to work in your favor … it also allows you to sleep well at night.
I tend to set a stop-loss that sits 1 to 2 times my original credit. Since I’m selling the 470/475 bear call for roughly $0.65, if my bear call reaches approximately $1.30 to $1.95, I will exit the trade. As always, I will keep you updated on the status of the position as it progresses and send any necessary updates.
As always, if you have any questions, please feel free to email me at andy@cabotwealth.com.