Beginner in selling Bull Put Spread

[beerntrading]

Super informative, I learned a lot in the text.

Thank you so much for sharing your knowledge and experiences.

Megane

Yup, no problem. Always happy to help a fellow options trader (who is using them correctly, and not just to get inappropriate amounts of leverage )

 

[Megane]

What broker/platform do you use? How do you pick which stocks/indices and strikes to use? A lot of people really like ThinkorSwim from TD Ameritrade, although I'm not sure if that is available in Canada.

I used ThinkorSwim but it's un unavailable for Canada. The only platform at a decent price for options in Canada is Interactive Brockers. All others are so expensive that it grabs way to much of your profit.

When I choose a stock, it is because I know this stock for a while because i'va been trading it and have a better feeling of it's mouvements. As for the strike I choose, I like to have 90%+ chances not being exercised and usually take 30 days or so.

 

[Megane]

Like @Kim Klaiman points out... we've been in a bull market for a long time... with dropping implied vols, both working in favour of a short put spread.

Aside from the mentioned 10% drop in Amazon... how will you cope with a smaller drop + increase in vols? How is your trade management? Do you use full margin or do you keep money aside? A 50k loss... how does that affect you, can you cover that? How about half that?

I only trade with the money I actually have in that account which is a small portion (10-20
%) of my total investment portfolio.

 

[ironchef]

When I choose a stock, it is because I know this stock for a while because i'va been trading it and have a better feeling of it's mouvements. As for the strike I choose, I like to have 90%+ chances not being exercised and usually take 30 days or so.

If you are so sure, why don't you just go long or short instead of doing a spread?

 

[trader42]

• Bull Put Spread RUT Aug 17 1305 1300 for a premium of 0.20$ X 51 contracts Expired Profit: $1020.00

• Bull Put Spread AMZN Sept 17 880 875 for a premium of 0.28$ X 105 contracts Delta: 7% Possible profit: 2,940$ Possible lost if exercised:$49,560

• Bull Put Spread EDU Sept 17 65 60 for a premium of 0.24$ X 50 contracts Delta: 7% Possible profit: 1,200$ Possible lost if exercised:$23,800

The one change you might consider is trading wider spreads with reduced number of contracts. This will reduce commissions and might improve slippage.

 

[trader42]

Not at the moment (on to diagonals for now).

Diagonals because of the low volatility? Thanks

 

[beerntrading]

Diagonals because of the low volatility? Thanks

No, just a long enough term market bias to where I could play them between earnings seasons. But I do open the longs optimistically on low volatility, and the shorts on high.

 

[Megane]

If you are so sure, why don't you just go long or short instead of doing a spread?

90% or more is the number I get in ThinkorSwim, I like to stay on the safe side for now and this is what I consider relatively safe for me. It might change in the futur, will see.

What about you, would you do those ones without spreading it ?

 

[Megane]

The one change you might consider is trading wider spreads with reduced number of contracts. This will reduce commissions and might improve slippage.

....might improve slippage....Whatdo you mean ? I guess my english is lacking here, sorry if it looks like a silly question !

 

[trader42]

....might improve slippage....Whatdo you mean ? I guess my english is lacking here, sorry if it looks like a silly question !

Trading less number of contracts, you will likely lose less on bid/ask spread in sum.