Beginner in selling Bull Put Spread

Megane · Oct 23, 2017

I am an happy camper since all my 3 options went well:
RUT Putt 1330/1335 0.25 @ 28 contracts for a possible profit of $700
SPX Putt 2335/2330 0.20 @ 23 contract for a possible profit of $460
AMZN Putt 895/890 0.50 @ 13 contracts for a possible profit of $650
Total for October:$1810

Now for November my options trades are the following:

AMZN 880/875 0.24 @ 25 contracts for a possible profit of 590$
GOOGL 895/890 0.18 @ 14 contracts for a possible profit of 232$
RUT 1425/1420 0.22 @ 17 contracts for a possible profit of 350$

Feel free to comment so we can all learn !

beerntrading · Oct 23, 2017

Megane said:
I am an happy camper since all my 3 options went well:
RUT Putt 1330/1335 0.25 @ 28 contracts for a possible profit of $700
SPX Putt 2335/2330 0.20 @ 23 contract for a possible profit of $460
AMZN Putt 895/890 0.50 @ 13 contracts for a possible profit of $650
Total for October:$1810

Now for November my options trades are the following:

AMZN 880/875 0.24 @ 25 contracts for a possible profit of 590$
GOOGL 895/890 0.18 @ 14 contracts for a possible profit of 232$
RUT 1425/1420 0.22 @ 17 contracts for a possible profit of 350$

Feel free to comment so we can all learn !

What would a hit to the tune of say...$26,828 do to your account?

Not trying to rain on your parade, but you're only picking up 4% on this trade with a nasty downside.

maxinger · Oct 23, 2017

1

Megane said:
I am an happy camper since all my 3 options went well:
RUT Putt 1330/1335 0.25 @ 28 contracts for a possible profit of $700
SPX Putt 2335/2330 0.20 @ 23 contract for a possible profit of $460
AMZN Putt 895/890 0.50 @ 13 contracts for a possible profit of $650
Total for October:$1810

Now for November my options trades are the following:

AMZN 880/875 0.24 @ 25 contracts for a possible profit of 590$
GOOGL 895/890 0.18 @ 14 contracts for a possible profit of 232$
RUT 1425/1420 0.22 @ 17 contracts for a possible profit of 350$

Feel free to comment so we can all learn !

Just want to comment on your AMZN Nov credit bull put spread.
You are betting AMZN would be mildly bullish which is valid.
The best time to enter this spread was few months ago.
so now the risk is higher.

Hope you have factored in this risk

Superstar2317 · Oct 23, 2017

Amazon pulling back to $960's could easily hit your level on bad earnings as could Google in a few days. Better odds entering after earnings!

beerntrading · Oct 23, 2017

Superstar2317 said:
Amazon pulling back to $960's could easily hit your level on bad earnings as could Google in a few days. Better odds entering after earnings!

Oh, good call. I overlooked this one (in spite of the fact I passed up both on the weeklies for the same reason.

Megane · Oct 24, 2017

beerntrading said:
What would a hit to the tune of say...$26,828 do to your account?

Not trying to rain on your parade, but you're only picking up 4% on this trade with a nasty downside.

I am well aware of this possibility if the market crash but otherwise, it is unlikely to happen to all 3 trades. But if it happens, I'll live and keep doing it since it is working 11 out of 12 so far.

Megane · Oct 24, 2017

Superstar2317 said:
Amazon pulling back to $960's could easily hit your level on bad earnings as could Google in a few days. Better odds entering after earnings!

Yes I know, I guest I am bullish on the stock AND on the earning market reaction. Will see what happens.

Megane · Oct 24, 2017

SPX, SPY, RUT and QQQ were very hard to make money on bull put spread this time since margin were very thin. :banghead:

maxinger · Oct 24, 2017

Megane said:
SPX, SPY, RUT and QQQ were very hard to make money on bull put spread this time since margin were very thin.

As mentioned earlier, the later you enter, the higher the risk, the lesser the premium you are going to collect.

Months ago, if you entered a credit bull put spread, you would have collected tons of money.
Now you probably can enter similar spread. but the risk is higher, and reward poorer.

put simply, the later you enter, the poorer the reward risk ratio.

so we cannot enter such spread indefinitely.

In trading, timing (when you enter) is very important.

beerntrading · Oct 24, 2017

Megane said:
I am well aware of this possibility if the market crash but otherwise, it is unlikely to happen to all 3 trades. But if it happens, I'll live and keep doing it since it is working 11 out of 12 so far.

I'd argue it's more likely to happen to all three than just one. In a 10% move, GOOG and AMZN are going to move in lock-step, and it's unlikely small caps will be spared the panic. And it's not just how these settle at expiration, but how you would do when it starts a move down, liquidity dries up, and volatility and spreads go to the moon. Do you hold firm and ride it out, or do you bail early and cut your (still very substantial) losses? And I ask that rhetorically unless you've been through such a move and know how you'll react when the pressure and losses are real.

I'm not trying to rain on the parade and I trade a similar strategy much closer to the money and over a week not a month. So the types of blowout moves come along relatively frequently for me...But I hedge it.

Look back at the number of times a 5% move has happened over the course of a week, and realize this will shake your confidence of whether this move is the real one, with punishing losses if you close, and even worse ones if you hold and you're wrong. The microcosm that you've tested this in is a historically strong bull market and if you're always waiting on the tracks, eventually a train will come faster than you can get out of the way.