Good morning hivers,
Today was another trading day for me, although I almost sat this one out as I saw the market was just rangy and indecisive this morning, according to the marketwatch indicator I look at. Plus, the PA (price action) on the hourly chart was looking iffy..
Looks like maybe a bear run going, but it's not totally clear.
I often forget to check the news coming out that might (and most often does) affect price and general market craziness..
There is no big news coming out today, but there is a few big ones coming tomorrow morning. This will often cause people to NOT trade as much BEFORE any big news comes out, so price will stay in a small range or not move at all.
A Look at the 15-minute chart confirmed a bearish move..
I decided that price would continue to drop, or it would just stay where it is. Either way, it should be a pretty safe bet to enter a ccs (call credit spread), to profit from price moving DOWN or at least staying BELOW my strike price.
I like to enter on a widening of the moving averages as that means the move is getting stronger and I should sell into it.
Since I was not as confident in this trade as I am on a bullish move, especially at the end of the week, I decided I wanted to increase my odds of winning by LOWERING my delta. I usually aim for delta 16 or lower. The lower the delta, the HIGHER your probability of profit. (POP) I could simply choose a lower delta strike price to sell, but as the delta gets lower, so too does the premium. (the credit the broker gives u for selling the option)
So, the way to increase the premium and get that lower delta is by widening the 'wings' of the spread that we sell. It is normally 5-wide (means u sell the strike price and buy one 5 pnts away from that price) each increase in wingsize will also increase the premium given. (It increases in 5 pnt increments) I ended up selling a 15-wide option in order to get the premium I wanted AND sold the delta 9 strike price I wanted. The flipside of increasing wingsize is that it costs more in BUYING POWER (the deposit u must already have in your account, that the broker holds during the trade) so for me, to trade that 1 contract, cost me about $1500 in BP. (something I couldn't have done when I started with just $1k before.)
Oh yea, I forgot to say that I look at the VIX (also called the Fear Indicator) which tells the way people are trading at that time.. the higher it is, the more wild the moves and big moves are to be expected. It was pretty low now, so I was feeling like 15-wide was a good choice.
Here's a snap I took right after my trade hit it's target limit..
It seemed to take extra long to give up the .50 I wanted.. It would hover at .40-.45 and back and forth. Finally it closed, or I was gonna close it at the 1 hour mark.
