Quote from rdemyan:
My initial plan is to get out of these spreads if at any time I can buy them back for $0.10 or less and assuming we are still a couple of weeks from expiration. However, i am prepared to hold on until expiration.
Two months out is because I want to go really FOTM and with bear calls the credit received is less than with bull puts. So I'm attempting a strategy that puts on the spread 7 to 8 weeks ahead of expiration in order to get more credit. To mitigate the increased risk, I'll go further FOTM and I'm going to restrict the % of my portfolio devoted to credit spreads. But I have no intention of putting on the two month out spread before the two month prior expiration. So I won't put on a July spread until the May options expire.
Do I have all of the answers. No. Do I have mounds of quantitative analysis supporting all of my numbers. No. And, let's face it the concept of FOTM really only applies at the moment you put the spread on. A week after it might not be so far out of the money anymore.
I'm just looking for a conservative strategy that doesn't require that I know with a great degree of certainty which direction the market is headed, will give me a fairly good return and hopefully cause me not to sweat. Further, I'm fully prepared to sit out if the market appears to be making a strong move up.
Finally, I do follow Mike Parnos' trades (he's been mentioned a couple of times on this thread; he has a subscription service), and he does seem to have success when he puts SPX trades on 7 weeks in advance (rarely 8 weeks). I believe in the 14 months I've watched his trades, he hasn't had to adjust once or lost any money on an SPX trade put on 7 or more weeks till expiration. He also goes quite FOTM.
I'll have to see how it goes.
