Beginner in selling Bull Put Spread

[Megane]

How did you come up with a max profit of $392? Based on the price of Amazon stock today if I sold a bull put spread at 1250/1245 strikes I would get a max profit of $80 and max loss of $9,920.

At any rate this is way too much risk for such a tiny profit.

Because when i placed the trade on Feb 20th, I was able to get a credit spread of 0.42x100x9 contracts - comission fees

 

[Fastdryvr]

Megane, the RUT trade sounds similar to something shared with me recently during an investing seminar. Are you still trading it? Are you entering on or around previous month expiration?
My backtesting shows some trouble in March and this month is looking interesting.
What do others think of placing this trade by aligning with tech analysis.... Entering at higher volitility and when rut is near a support? Possibly going the other way with a call spread when at resistance?... More backtesting!

 

[rwnomad]

Some ideas for your testing: entering 45-60 days til expiration, Use a stop loss between 1-2 times profit target. Profit target 30 - 80% of credit or max profit amount, Time limit on exit, 2 -4 weeks before expiration.

 

[IndyJonerJr]

It is most likely accurate but that does not mean you will be profitable in the long run.

When you do a trade always ask yourself: Why would your counter party make this trade? Why would they hand you free money? What do you know that they don't, after all they do this for a living? Option is not an easy game. Some of the brightest minds in finance are your counter parties.

I am not the one you should ask for opinions, seek out the ET pros, read up on their posts and ask their advice.

Regards,

don't fully agree with some of your comments..

they are willing to sell you 10% down put the same as they are 35% puts... it makes no difference to them, it's algorithms. if you have a offer between strikes or close to there ask, it's your's.


another comment you made on increasing widths, one problem with that is bigger width means higher margin requirement compared to shorter width lower premium.. it is a balance between finding a "sweet spot" of as you said, commissions and premium and contract size..


the beauty of spreads, as I''m finding as I'm new but I learn quick is, there is higher leverage you can play it for if that's your thing, and you walk into a known risk reward situation.. where you might not be able to do that if you sold a 5% down put and the market wakes up to a 10% drop.. you maybe missed your risk management zone you will sell and it could have gone past that.. the problem with spreads is commission fees and double that closing them if you wanted to.. sometimes its seriously not worth closing them out if you have to pay double commission fee. this is what I find to be the Achilles heel of spreads is a lot of the time you are Locked into a position and can painfully watch high premium opportunities pass by because you are "locked in" ..

the problem I see for Meghane, is the margin fee eating into profits, have you ever calculated out net income after fees and taxes are paid...


I'm new to this too... I guess take a blend of all our "advice"