"The only way to trade with Fibonaccis" journal

[1a2b3cppp]

7/19

Open positions:
SPY: $4,152
SH: -$1,254

Net for this trade:
$550.64 (estimated dividend payment)
$2,898.00 (net SPY/SH position)
-----------------------------
$3,448.64

 

[1a2b3cppp]

7/20:

Open positions:
SPY: $3,144
SH: -$913

Net for this trade:
$550.64 (estimated dividend payment)
$2,231 (net SPY/SH position)
-----------------------------
$2,781.64

 

[1a2b3cppp]

7/23:

Open positions:
SPY: $2,040
SH: -$506

Net for this trade:
$550.64 (estimated dividend payment)
$1,534 (net SPY/SH position)
-----------------------------
$2,084.64

 

[1a2b3cppp]

7/24:

Open positions:
SPY: $1,112
SH: -$154

Net for this trade:
$550.64 (estimated dividend payment)
$958 (net SPY/SH position)
-----------------------------
$1,508.64

 

[1a2b3cppp]

SH closed at the same price as yesterday but SPY closed slightly up.

7/25:

Open positions:
SPY: $1,136
SH: -$154

Net for this trade:
$550.64 (estimated dividend payment)
$958 (net SPY/SH position)
-----------------------------
$1,532.64

 

[1a2b3cppp]

So I have been thinking about how I could incorporate options as an exit strategy.

Based on the current value of SPY and SH:

If I were to sell Aug 137 calls I would get a premium of $1,208. Under these condition:
- if SPY closes under 137 then nothing changes except I keep the premium
- if SPY closes above $137 then my SPY profit is limited but I keep eating a loss on SH as SPY moves higher.
- the magic SPY price is $138.51. If SPY closes above this price then I make less money for having sold the calls. If SPY closes below this price then I make more money for having sold the calls.

I had a whole bunch of examples written out but here is a chart that explains them much better:

(none of the above examples include the dividends or commissions)

 

[1a2b3cppp]

I also ran the numbers with SH Aug 35 calls.

The magic number here is SH around $36.39 (I made an error in my calculations and don't feel like redoing it) which translates to SPY of roughly $136... ish.

So if SPY closes over 136 I make more money for having sold SH options, and if SPY closes under 136 I make more money if I didn't sell SH options.

So basically it comes down to having to know whether SPY is going to go up or down, and if I was able to know that I would just close all these positions and buy (or sell) as many ES contracts so I could afford.

So at this point selling covered call options are of no use to me, but this was a fun exercise.

 

[1a2b3cppp]

Yes, I know SH doesn't track SPY exactly so the numbers are bound to be off a little bit IRL. But this is close enough for the analysis I did.

 

[1a2b3cppp]

Here are all the option possibilities together on one table.

The table is color coded in the three colums for no options, SPY calls, and SH calls:

Green: highest P/L
Yellow: middle P/L
Red: lowest P/L

 

[1a2b3cppp]

And in case anyone was wondering what it would look like if I sold both the SPY and the SH options:

Red = lowest P/L
Pink = second lowest P/L
Yellow = second highest P/L
Green = highest P/L

So selling them both creates sort of a short strangle (which makes sense if you think about what is happening... selling SH calls is basically like selling SPY puts).

If the chart goes lower than SPY of 130 and higher than SPY of 143, selling both options become the lowest P/L of all options.