AMZN Credit Spread

[RGLD]

Here's another reason not to wait till expiry:

OTM options will have a swift drop and then the curve bends back. You got lucky that the drop occurred real fast in your trade but you are basically standing at the midpoint and the theta decay will be slower and slower. In the mean time you remain open to market risk. My rule of thumb is to close such long term credit trades when I get to 2/3 of the theoretical profit. (Yes I have sinned many times against this rule! Dont do as I do, do as I say.)

Thanks for this info. People usually advise to close options positions at 50%. Just that this magic percentage is a mystery to me. The underlying can go in your favor weeks before expiration and you can close out at 50%. Or it can hang out near the strike days or even hours before expiration with 50%.

 

[Kim Klaiman]

I never hold till expiration.

Why You Should Not Ignore Negative Gamma articles explains why.

 

[viruscore1]

Each to their own. I donot not trade iron condor, so holding a short otm put position to expiration is mindless. As long as the underlying stock price is increasing and you're earning $, it's a lot less time consuming to just let it expire worthless.
Actually, it depends on your trading strategy and unique to each situation. Not one exit strategy works for all trades. Although, I can see it happening for the under capitalized, to free up capital. Or the underlying stock price is decreasing, closing in on your strike price, and you may need to flatten out the position. On the other hand, cash covered otm short put is a strategy to accumulate stock discounted by the put premium. Especially before ex-dividend date, but that's whole different thread...
The following results do not include dividend payment of around $1500. Not once did I close out early...

 

[TradingDemystified]

Based on your analysis, AMZN has a high probability drop below $780 by Dec 15 which is about 100 days from today.

No need to guess, option prices indicate the collective best guess of the market (with millions of dollars supporting it, so not "just a guess"). In this case the market indicates there's an 8% probability of AMZN finishing below 780. Alternatively, you could use the 15-DEC-2017 780Put delta for a good approximation of this probability

 

[Kim Klaiman]

Traders who ignore negative gamma will eventually go broke. Sure, the spreads will expire worthless most of the time, maybe for weeks or months. But then this one time will come when the stock reverses, and will erase all previous gains. And when it happens 2-3 days before expiration, there is nothing you can do about it.

For me, when I can close the trade and get 80% of the maximum gain, I will do it. The last few cents are just not worth the risk.

 

[viruscore1]

Traders who ignore negative gamma will eventually go broke. Sure, the spreads will expire worthless most of the time, maybe for weeks or months. But then this one time will come when the stock reverses, and will erase all previous gains. And when it happens 2-3 days before expiration, there is nothing you can do about it.

For me, when I can close the trade and get 80% of the maximum gain, I will do it. The last few cents are just not worth the risk.

There you go again repeating greek bs. You can regurgitate all the greeks you like but profit's speak for themselves. BTW Have you ever placed this type of trade? if you have then you would understand there isn't always open interest at the prices you like and no way i place market orders. Of course, you'd like to appear as a vendor know it all...hahaha But with experience, you'll realize there is an advantage to let some trades expire worthless. One of them is profits...

 

[viruscore1]

No need to guess, option prices indicate the collective best guess of the market (with millions of dollars supporting it, so not "just a guess"). In this case the market indicates there's an 8% probability of AMZN finishing below 780. Alternatively, you could use the 15-DEC-2017 780Put delta for a good approximation of this probability

View attachment 177556

FYI My software says <6% chance. My knowledge of AMZN and price action history agrees.

 

[Kim Klaiman]

There you go again repeating greek bs. FYI you can regurgitate all the greeks you like but profit's speak for themselves...

Profits speak for themselves.. till they don't.

If you want to continue trading options and ignore the greeks by calling it bs, by all means, do it. Good luck to you.

 

[TradingDemystified]

you can regurgitate all the greeks you like but profit's speak for themselves...

Please please please keep trading without any concern for greeks... this is how we (the ones who do care about greeks, like Kim) make sure we stay in business in the long run...

 

[viruscore1]

Profits speak for themselves.. till they don't.

If you want to continue trading options and ignore the greeks by calling it bs, by all means, do it. Good luck to you.

Speak for yourself lol. I'm just messing with you, got to have a sense of humour <-- is that the canadian spelling lol . BTW the greeks are merely a label for a mathematical representation, and with experience you'll realize they don't work all the time, just like technical and fundamental analysis. But you're a vendor, ya gotta sell something...