Quote from falconview:
Don Bright
WOW! Interesting question Don. I must show my work. That comes under the heading of proprietory secrets. ( grin )
But I will go along, based on the premise, I´ll show you mine and you show me yours, to figure the odds on the unpredictable.
In a same month of trading credit spreads, I like to be out 6 strikes at the beginning of the month OTM. The odds of not getting hit, are I forget now, but very good. Often in the OEX you would not get hit if you were even 5 strikes out in a same month. As the month progresses, you can start narrowing the distance. For this weekly, same weekly, you can do a credit spread from Wednesday to Thursday based on RULE OF THUMB 2 % distance for a market move. Since I´m trading the QQQ now, that is 2% of 64 = 1.28 + 64 = or 65.28.
Using that rule of thumb, I can trade a weekly if I am two strikes OTM. Should there be premiums available. This is 1.30 a.m. There were no premiums available at strike 66 for safety yesterday afternoon, a Wednesday afternoon. So skip the trade, until Thursday afternoon, when the percentage of market swing narrows some more, on average in probabilities. Rule of thumb quick and dirty, I would trade a credit spread on a Thursday afternoon, if I could get premium at two strikes OTM. For expiration at noon the next day on Friday.
The second weekly starting this Friday, I would look for a three strike out OTM credit spread to do on the Friday. And of course if I could get 4 strikes out, I would build in an extra margin of safety. But would accept 3 strikes OTM.
I would be looking for .35 cents to .25 cents, no less than .25 cents per contract.
In the case of this market, we are in a complex situation. I show we are in an intermediate downtrend, while we are in a longer uptrend. So I figure the market is going sideways, for my two day time period. I would want 2 strikes OTM this Thursday in the morning for .25 cents or more. The premiums were not there yesterday at these strikes. So no trade.
