How about this spread trade?

B

bbpp

Anyone trades vertical credit spread?

Like this:( I just did in an option simulation)

2/15/17 10:23 SPXW1715N2325 SPXW Feb15'17 2325 put LONG 10
0.45

2/15/17 10:24 SPXW1715N2330 SPXW Feb15'17 2330 put SHORT 10
0.75
When I am bullish, I will place an OTM credit spread on nearest expiration
date SPX puts.
Stop when 2330 put is in the money.
This is limited risk and reward, better than just selling puts.

If SPX puts expire worthless today(look most likely now),I will make $300 (
excluding commission), on a few hundred capital.
 
  1. You max risk isn't "a few hundred" it's a few thousand.
    2330 - 2325 = 5 which is 500 per spread. For 10 spreads that's $5000 so you're hoping for a 6% return on risk.
  2. You haven't said how you're deciding how far away to place the short put.
    That's crucial because it affects your probabilities and therefore your system's expectancy.
 
1. It is much more than a few hundred, but much less than $5000. Because as a stop ,I will close the spread as soon as SPX reach high strike put. I just check, if SPX goes to 2330 right now, I could lose like $1300.

2.I decide the strike as it is very unlike SPX can touch it if induces are up on the day.
So as I saw all induces went up at the open(in a strong up trend market), I guess SPX is very unlikely to touch 2330 today,I think it has less than 10% change.
 
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bbpp said:
1. It is much more than a few hundred, but much less than $5000. Because as a stop ,I will close the spread as soon as the higher strike put approach at the money. I just check, if SPX goes to 2330 right now, I could lose like $1300.

2.I decide the strike as it is very unlike SPX can touch it if induces are up on the day.
So as I saw all induces went up at the open(in a strong up trend market), I guess SPX is very unlikely to touch 2330 today,I think it has less than 10% change.
More...

I understand that you're planning on managing the trade by closing the short if it goes ITM. Nonetheless your max risk is $5000 - $300 = $4700 since SPX can gap past both strikes overnight.

"Unlikely" is a subjective term. You can easily calculate the probability of the short closing ITM and get an actual number.
 
The SPX puts expire today, so no gap up risk.
If I play more than one day options, I will choose a strike much far away.
Or I can chose a nearer strike but close the spread on the day.
 
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OK I see better what you're doing. So these are credit spreads that are only held intraday.
Granted the tail risk is fairly small for a 1 day move but it still exists. At least gap risk isn't a concern.
 
I just pulled up the chain for today's SPX expiry. The ATM put is trading at around $2.00 so you'd be taking a $2000 - 300 loss if you closed when the underlying touched the strike.
 
bbpp said:
Did you include the proceeds from the long position that I will sell if I am to close the spread?
More...
No but the next strike down is trading at around 0.60. Gamma can kill you this close to expiration.
So $2200 - 600 - 300 still = $1200.
 
That is why I make this post.

I am not sure how much I will lose when I am hit with bad luck and have to close the spread at a loss.
 
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