Options Trading

Options Expiration Experiment

2011-09-07T20:46:00.003+01:00

I thought it would be cool to show you a typical options set-up and the dilemma that you run into when making a decision to tolerate a pullback or not. I’m a big believer in swing trading with options, I’m not one to hold an option through to much pulling back. I believe time and risk is money and when price thrusts especially after a couple of gaps I’m out. Take a look at the following image. I’ve pointed out where one might have considered buying some puts. Nice resistance level, price is still in a consolidation period so mo break-out is expected, and no new pay-cycle is expected to start just yet, so a short move down is anticipated.....

http://renegadetrader.com/options-expiration-experiment/

Bear Call Spreads on RUT

2010-03-03T23:31:00.002Z

It's been a long time since my last condor strategy trade. I set my self a goal of getting back by March, so the trade is on base don the right conditions.

RUT is in an uptrend. Stronger than SPX and DJIA. On weekly chart the high end of the up trend channel is around 680. On daily it is clear that there is resistance at R2 pivot and R3. Both on weekly and daily William %R is overbought and could stay like this for a while.

Also note fib extension of 127% coincides with R2, while 161% coincides with or is lower than R3.

I've been filled on following:

Sell April 700 call
Buy April 710 call

for limit spread of 0.60 c per contract, order was filled. Now its a matter of waiting for a pull back before I enter the bull put spreads. I've given my self time on the contracts as the March contracts will expire in 16 days while April contracts have more than 40 days with more credit.

Enterd Call Credit Spread in SPX

2009-07-16T20:07:00.003+01:00

It's been a long time but just trade the my call credit spread in a long time. A bit cautious but getting in slowly. SPX is moving up and has already mad a substantial move. It's up around 70 points from the July lows.

I entered 1025/40 call spread giving $0.80 per contract. If it works out should be a nice return of 5%. The order is way above the 161%fib extension. The idea is the time would be lost by the end of the contract which has 35 days to expire.

Time to sit and watch.

Ready to trade again

2009-06-05T08:13:00.002+01:00

I've neglected my options trades. The market has been consolidating and has now broken out give me a direction on where to place my trades.

RUT has broken to the upside and a bit sluggish it is a good few points away from the next resistance at 570 which is the 127% fib extension.

MACD is above 0 and histogram is also above 0, with momentum rising. The market is an uptrend, so will try and place PUT order if there is enough credit and also place Call order much higher to avoid getting touched.

No Fill on RUT

2009-05-18T23:22:00.001+01:00

RUT rallied today and I never got the fill. This changes my tactic. I will now be waiting to enter the Call credit spread when RUT hits resistance.

RUT PUT Credit Spreads

2009-05-18T15:33:00.004+01:00

Click to enlarge

RUT June options contract have 31 days to expiry, hence plenty of time value in them. Based on the technical situation I placed to the following order:

Sell to open 380 June puts
Buy to open 370 June Puts
For credit of 0.42 per contract

I will Wait to open call positions if the RUT rallies.

Technically RUT has had a big rally and will possibly retrace a bit. I've placed my orders below the low of the 23% retracement area, which is also below the 20MA.

If RUT reaches 539 I will open the call positions.

Still waiting

2009-05-06T15:58:00.001+01:00

It's been 2 weeks since my options expired, I've not placed trades yet for a reason. I'll be moving to a safer strategy and be protecting my positions hence doing a bit of reading and back testing.

Options Expired

2009-04-17T09:42:00.000+01:00

RUT options have expired so I get to keep all the premium. Will wait for settlement price to come out, which is Saturday morning (UK).

I should have a very nice return on this.

2 days to go

2009-04-14T08:01:00.000+01:00

(click image to enlarge)

As I write only 2 more trading days to go. The market is currently at 468 which is still in safe areas as long as it holds below 471 the weekly resistance line. The price has also approached the downtrend line and will possible pull back sligthly before a breakout if any. There is still a 50 point cushion to reach my short call at 520.

Looking good.... time is on my side

2009-04-08T09:41:00.000+01:00

(Click image to enlarge)

I.m still in the trade, I have another 8 days to expiry of the Russell 2000 April options. Both of my options strikes puts and calls are around 100 points away from the current price. Usually I would close both orders but we only have another 5 trading days if you consider the bank holidays and weekend.

I've put up 2 charts line and candle. We are not out of the woods yet, the momentum has fallen off causing a negative divergence, which is pulling the price down. If the price closes below the MA20 (purple) we should see a fall back to 385 support taken from a previous low.

Good breakout

2009-04-02T16:26:00.000+01:00

(click image to enlarge)

A quick update. The market seems to be breaking out and enjoying a rally. My positions are still in tact. As we speak, 4:30pm GMT, RUT is above the blue trend line 443, if it can close above it we have could have another run up to the red line. This is the 78% Fib retracement level. I've taken of the grid to make it easire to read. I've also placed to charts side by side to make it easy to read. One line chart and one candle chart.

I am waiting for a touch and possible reversal or pull back of the 78% mark before I close out my Call options. I do not want to risk being exercised. That's it for now.

Going well

2009-03-30T16:34:00.000+01:00

So far the strategy is going well. Last Thursday I placed the second wing of the trade by entering the April 520/30 calls spread with a limit of $0.40 per contract. If all goes well and RUT ranges between 520 and 330 then I should be able to net $0.85 per contract.

I have a range of 190 points and there is 17 days left to expiration. As I write RUT is down 17 while the DOW is down 290 points, I sense a bit of profit taking.

I expect RUT to pull back to it's 20 MA which is around the 385 mark, see last chart posted on 24 March. Dow has support around 7250 and spx around 750.

Caution, the martket is still in a downtrend, it needs to peak above the last significant high and and a higher low before we can retore confidence in the market.

I'll be talking more about the VIX soon, for now thats all.

Now it's sit and wait.

RUT Puts

2009-03-24T14:36:00.000Z

Click image to enlarge

RUT (Russell 2000) more or less replicates the SPX. RUT has not broken or closed above the ceiling resistance of 440 yet!

It also currently stands at 424 just on the open. The 320/330 puts look interesting with a decent credit. I've placed for a limit credit of $0.45 per contract.

Why? with the weekly MACD indicating a bullish move I don't expect the price to collapse down to the last low of 343 before April expiration.

Filled, $0.45 per contract.

Breakthrough, will it hold?

2009-03-24T13:46:00.000Z

Action: Sell PUT credit spreads in a bullish market. Below 590 (127% fib Extension). Also sell calls when price reaches 884 (78% fib retracement).

The fact that SPX has closed above the down trend line I expect a rally up towards the second down trend line on the daily chart above. The weekly chart shows MACD divergence which is still the main indicator for a bullish move.

Getting ready again...

2009-03-19T08:15:00.000Z

Looking at the weekly chart we still have a few points to rise. I expect a slight pull back abut entering a credit call spread now would be pre-mature. We have a HL on MACD indicating another push to the downtrend line and MA20, which is around 845. It's now sitting at previous support turned into resistance. I Hope nothing just watching price action and trading what I see. It's also at 50% Fib retracement.

Out with 4.6% in a week!

2009-03-16T20:00:00.000Z

I'm out of the trade. The market had risen enough and I saw an opportunity to get out with a decent return. Rather than wait for the contracts to expire worthless over a month, I got out reducing my exposure to volatile moves.

I originally entered the trade on 9th March for a credit of $1.10 per contract and closed my position today for $0.40 per contract. That gave me a profit of $0.70 per contract in a week. On margin of $1,500 per contract that gives me a return of 4.6% on capital invested, excluding brokerage costs.

I am still waiting to enter the call credit spread once the market is high enough. Watch this space.

Going well...

2009-03-15T21:38:00.001Z

ACTION: Watch 800 level to sell call credit spreads.
CHAIN: Above 900 level

Once the trade is in place, there's not a lot to really do. I'm sitting and waiting for the contracts to lose time value while I profit. As of close on Friday 13th March my position is quoted mid $0.60 from my original entry at $1.10.

If I cash in now, I'll probably get around $0.80 after bid and ask and comissions. I still have another 32 days before expiry. I plan to close my position in the last few days unless the market is significantly away from my strike prices.

I'm still waiting for the market to rise further before I look to place call credit spreads.

WEEKLY CHART: We currently stand at 756. I can see the market rising to at least the 20 Moving Average on the weekly chart which is around the 50 mark, this coincides with the triangles uptrend line.

DAILY CHART: The market has moved above the 20 MA which is a positive sign. I'd expect a pull back to the 20 MA before another move up. On the daily chart a close target of 800 is realistic before we see a pull back. The 50 MA and 50% fib retracement are coinciding at the 800 level.

Click image to enlarge

SPX Put Credit Spread

2009-03-09T21:04:00.000Z

I placed the SPX April put credit spread 525/540 for a limit of $1.10 before the market open. I got filled at $1.10 per contract. I have 38 days for the contract to expire.

The plan is for SPX to move or bounce up and the puts to lose volatility and time value. If all fails I will close the position if key support leves are breached or close before the last 10 days into the contracts.

Time to Trade

2009-03-07T18:34:00.000Z

Action: Put credit spreads below 550

Well, this is interesting. SPX has hit the 127% fib extension on the weekly chart on a negative week. The low of the week was 666 which is the exact projected price from 1008 (last significant high, and the low of November 09 which was 739. The move picked up momentum after the break to the downside from the large triangle. The points picked are important. The triangle formed within that range just quoted, hence a break above and below these points are significant.

We also have another very interesting development. There is a cluster of fib 127% from the daily chart. The last significant high taken from above the 50 MA is 944 and again the low used in 739. We get a projection of 683. The daily bar on Friday (6 March 09) fell through 683 and manged to climb and close at 689. (see below)

On Monday get ready to place the trades. Place put credit spreads below 550, which is the below the 161% fib extension and also below the channel of the weekly chart.

Setting Price Targets

2009-02-28T11:04:00.000Z

This week the market closed below the 739 level. At this point I would expect a continuation towards the 567 level. The weekly price on SPX closed below 739 showing weakness.

Closer look shows SPX failing to move above the 8 moving average, this is a clear sign of weakness and momentum picking up.

Action: At this moment I will wait for SPX to reach at least 680 before I consider placing my PUT orders. 680 is derived from the last high of 945 - low of 738, which gives me a Fibonacci extension of 1.27 with a target of 682.

Using this method i should avoid getting in too early. If prices slices through the 682 level I will review my analysis.

Toj

SPX Watch

2009-02-21T19:08:00.000Z

Market outlook: Bearish

Action: Sell Puts on 739 bounce.

Action: Sell Call Credit Spread when price reaches MA 20.

As it stands SPX is in a downtrend. Its broken our of the triangles pattern, which is usually a continuation pattern.

Projected targets for SPX is around 570 which is a 1.61 fibonachi extension taken from 1008 (Nov 08) to 739 (Nov 08) lows. The markets has not been able to sustain 2 close periods above the weekly 8 moving average, hence very it's very weak.

Bollinger is squeezing, indicating a big move on the way as volatility picks up. Without a doubt more falls to come.

For now expect a quick bounce at the last significant low at 739 (20 Feb 09) lows.