SPX Credit Spread Look Back Trade

SPX – 07/08/2016

This trade was a credit spread scalp all attempted on 7/8 based on a momentum strategy. I thought the market would begin a move down that day and saw the opportunity for a quick profit. SPX did not cooperate and I ended up placing a hedge trade to protect my spread.

With SPX trading at $2126 I bought 10 contracts of the July week 2 $2140 Call and sold the July week 2 $2135 calls against them for a net credit of $0.20. Might not sound like much but I had the opportunity to make $200.00 on a risk of $4,800.00 or 4.2% in less than about eight hours.

As the day went on, the market continued to push toward my $2135 short position to the extend that I decided to purchase two July week 3 $2130 calls to hedge this trade. I chose the week 3 expiration because time decay would not affect their value as much as the week 2 Calls.

That would give me some protection above $2135. My plan was if the market continued up I would just close the entire position letting my $2130 Calls reduce my loss. Eventually the market leveled out and I felt confident selling my two $2130 Calls for a loss and letting the rest of the trade expire. I was still able to make $120.00 on the trade or 2.5% even though I was mostly wrong and had to defend the position. I say mostly wrong because SPX never reached my short $2135 Calls that day. But, I was wrong enough that I had to defend.

Date

Sym

Action

Exp

Strike

Price

Cont

Type

Cost

Balance

07/08/16

SPX

BTO

7WK2

2140

-$0.10

10

Call

-$100.00

-$100.00

07/08/16

SPX

STO

7WK2

2135

$0.30

10

Call

$300.00

$200.00

07/08/16

SPX

BTO

7WK3

2130

-$11.30

2

Call

-$2,260.00

-$2,060.00

07/08/16

SPX

STC

7WK3

2130

$10.90

2

Call

$2,180.00

$120.00

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