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