This is a Vertical Credit Spread I am about to trade..

[Con1991]

So I am a big fan of vertical credit spreads in options trading, mainly because they have limited risk. Of course, the reward is also limited, however I find they have a greater chance of success, over simple directional trading.

This current spread I am about to open (tomorrow as the market is closed now) is NDX. Volatility in this instrument is huge, and I usually trade the midpoint of the spread. Currently, the midpoint of this spread is 100. Since the width of the strikes is also 100, technically speaking, this trade is risk free. I have had these filled in the past. There is still a risk of assignment, however since NDX is cash-settled, this would only be at expiration.

Just wanted to show this is possible, depends on whether or not there is a counterparty to take your trade on the other side of course. But something like this can be very profitable.

 

[cesfx]

So I am a big fan of vertical credit spreads in options trading, mainly because they have limited risk. Of course, the reward is also limited, however I find they have a greater chance of success, over simple directional trading.

This current spread I am about to open (tomorrow as the market is closed now) is NDX. Volatility in this instrument is huge, and I usually trade the midpoint of the spread. Currently, the midpoint of this spread is 100. Since the width of the strikes is also 100, technically speaking, this trade is risk free. I have had these filled in the past. There is still a risk of assignment, however since NDX is cash-settled, this would only be at expiration.

Just wanted to show this is possible, depends on whether or not there is a counterparty to take your trade on the other side of course. But something like this can be very profitable.

Looks like a deep itm bear call spread, 100$ wide, sold for a 100$ credit, - commissions... where is the profit?

 

[Con1991]

Looks like a deep itm bear call spread, 100$ wide, sold for a 100$ credit, - commissions... where is the profit?

I have not opened the trade yet as the market is closed. However, if the price were to drop to say 98, from 100, the profit would be $200 per contract..

 

[earth_imperator]

I have not opened the trade yet as the market is closed. However, if the price were to drop to say 98, from 100, the profit would be $200 per contract..

The underlying is at 12,601.47 as of close --> https://finance.yahoo.com/quote/^NDX/options?p=^NDX&date=1660867200.
What does "if the price were to drop to say 98, from 100" mean?
If it drops 2% ?

 

[cesfx]

I have not opened the trade yet as the market is closed. However, if the price were to drop to say 98, from 100, the profit would be $200 per contract..

And for that to happen, ndx has to drop... Is it a sort of low risk short bet?

 

[Con1991]

The underlying is at 12,601.47 as of close.
What does "if the price were to drop to say 98, from 100" mean?
If it drops 2% ?

Yes, that is the price of the underlying NDX. However I am referring to the mid price of the credit spread. The width of my chosen strikes here is 100, so I were to be filled at 100 (I have had similar fills in the past) and I then proceeded to buy back when the mid price fell to 98, then the profit is 200 per contract.

 

[Con1991]

And for that to happen, ndx has to drop... Is it a sort of low risk short bet?

The mid price just has to reach the lower price. In other words, as per my example, the mid would need to reach 98 and I then set up a buy limit order of 98.

 

[earth_imperator]

Yes, that is the price of the underlying NDX. However I am referring to the mid price of the credit spread. The width of my chosen strikes here is 100, so I were to be filled at 100 (I have had similar fills in the past) and I then proceeded to buy back when the mid price fell to 98, then the profit is 200 per contract.

You sure?
How much is your profit in percent? Is it 200 / 9998.70 * 100 = 2% ?
What about your margin requirement (or cash requirement) for this trade?
Can you enter it into this online tool, then Save, and then post the generated link here for verification? Thx
https://optioncreator.com/

Btw, you said "Volatility in this instrument is huge". Really? Isn't its IV just 30 or even lower?

 

[cesfx]

Ok thanks, interesting.
Delta is very very low, do you intend to profit mainly by trading around mid price?

How did it go in the past?
Did the underlying move substantially for you to exit with a gain?

 

[Con1991]

You sure?
How much is your profit in percent? Is it 200 / 9998.70 * 100 = 2% ?
What about your margin requirement (or cash requirement) for this trade?
Can you enter it into this online tool, then Save, and then post the generated link here for verification? Thx
https://optioncreator.com/

Btw, you said "Volatility in this instrument is huge". Really? Isn't its IV just 30 or even lower?

The margin requirement for vertical spreads is width of the strikes, minus price. So in this case, the margin is actually 0. When I said volatility is huge with NDX, I was referring mostly to daily range.