Cabot Options Institute Quant Trader – SPDR S&P 500 ETF (SPY)
SPDR S&P 500 ETF (SPY)
With the SPDR S&P 500 ETF (SPY) trading for 429.69, I want to place a short-term bull put going out 42 days. As always, my intent is to take off the trade well before the November 17, 2023, expiration date. I’ll discuss the trade in greater detail in our upcoming weekly issue.
IV: 17.8%
IV Rank: 23.4
Expected Move (Range): The expected move (range) for the November 17, 2023, expiration cycle is from 412 to 448.
Put Side:
The Trade
Simultaneously:
- Sell to Open SPY November 17, 2023, 408 put strike
- Buy to Open SPY November 17, 2023, 403 put strike … for a total of $0.58. (As always, the price of the spread can vary from the time of the alert, so please adjust accordingly if you wish to take on a position.)
*Our margin of error is 5.0% to the downside over the next 42 days.
Delta of spread: -0.04
Probability of Profit: 80.50%
Probability of Touch: 39.82%
Total net credit: $0.58
Total risk per spread: $442
Max return: 13.1%
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 408/403 bull put spread for roughly $0.58, if my iron condor reaches approximately $1.16 to $1.74, 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.
