Option Spread Combination 08/10/2023

 A strong opening gap up quickly propelled SPY above our +/-2 point target move. SPY remained strong into the 10:00 hour, attaining a high of 451.70. After drifting mostly sideways for a short period, SPY started moving downward. By 12:30, SPY had relinquished almost all of it's gains for the day, dropping to 446.15 before attempting to rally. That attempt failed near the 448 level, with another leg down carrying SPY to the low of the day at 444.70. SPY rallied again to near the 448 level, but quickly fell back to the 445 level before rising slightly into the close.

Here you can see the price change for the day:

As you can see, SPY was up nearly 6 points after the opening. From there it fell to a near 1 point loss, rallied, and finished close to unchanged for the day.

This serves as an illustration for some of the thought processes involved in this method. My work indicates that SPY will move +/-2 points intraday an overwhelming majority of the time. However, a +/- 2 point move close to close is much less likely. By using 1 day option spreads, one can take advantage of this size move to realize a profit. The spreads are not meant to be held until close, and setting a pre-determined price level to take that profit is reasonable. For the purposes here I am using a price of $0.85 per spread as a profit level. In today's case, the profit level for the call spread was reached fairly early, whereas were it to be held to the close, it would have incurred a considerable loss. 

Another aspect of the advantages of taking a profit early was also showcased today. On reversal days, one can take advantage of both sides of the trade. Today's spread combination was put on for $0.79. While the $0.85 profit level for the calls showed only a small profit, the put spread increased in value as SPY fell, reaching a maximum value of $0.43, with ample opportunity to close the spread out for $0.10 - $0.30. 

This can be seen here:

SPY closed today at 445.91.The combination spread for tomorrow is:

Aug-11 447 Call / Aug-11 448 Call

Aug-11 445 Put / Aug-11 444 Put

The Call Spread at close was $0.36.

The Put Spread at close was $0.31.

Total cost = $0.67.

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Option Spread Combination 08/08/2023

 SPY gapped lower to 447.92 before continuing lower to the low of the day at 445.27 just after 11:00. From that point SPY moved steadily higher, trying to close the opening gap. Just before the close SPY hit the high of the day at 449.23, before drifting slightly lower into the close.

Yesterday I mentioned two spread combinations I would be tracking today. The first involved a 451/452 call spread, combined with a 450/449 put spread. The total cost at the close on Monday was $0..70. The opening gap down made this combination became immediately profitable, and quickly moved near the maximum expected value of $1.00. 

There would have been ample opportunity to close this trade out above $0.90. As SPY rallied into the afternoon, the value dipped to near breakeven, but did close out profitable.

The second combination involved a 452/453 Call Spread, combined with a 449/448 Put Spread. The total cost of this trade was $0.44. Once again this trade became profitable at the open. The value climbed steadily, trading between $0.80 and the maximum expected value of $1.00. The value of the trade did decline as SPY moved higher into the afternoon, falling slightly below breakeven near the close.

Both trades would have offered ample opportunity to close out at a profit. Using our $0.85-$0.90 target price, both would have been closed out at a profit.

 Today SPY closed at 448.75. Our combination for tomorrow will be the 450/451 Call Spread for $0.29, and the 448/447 Put Spread for $0.41, for a total of $0.70.

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Option Spread Combination 08/07/2023

 My intent in this space is to track the profit potential of a specific option spread strategy that is easily implemented, but offers significant profit potential. This is intended solely as an educational exercise, and should not be construed in any way as investment advice.

Going forward I will delve more into the reasoning behind my choices. For now a simple explanation of the strategy will prove sufficient. This will allow me to track results and publish the results.

The strategy is designed as a single day trade, and I will focus on SPY options, as they offer options that expire daily. Near the close, both a call spread, and a put spread will be entered into, designed to straddle the closing price. The call spread will involve purchasing a call approximately 1 point above the closing price, and selling a call 2 points above the closing price. The put spread will be the same with a purchase of a put 1 point below the closing price, and selling a put 2 points below the closing price.

Utilizing this strategy should yield a profit on a two point or greater move in the underlying.

The chart above shows today's change in price of SPY. On Friday, SPY closed at 446.79. The Call spread I tracked was the 448/449 spread. The put spread was 446/445. The Call Spread at close on Friday was $0.38, with the Put Spread $0.35. The total cost for this combination was $0.73.

This chart shows the value of the call spread throughout the day, with the green line indicating the $0.73 combined purchase price. With today's strong bullish move, today's combination achieved maximum profit. Normally I would set a pre-determined value to exit the trade, in this case between $0.85-$0.90. Exiting at a pre-determined price will increase the probability of a profit. 

For tomorrow I will be following two combinations. With today's SPY close of 350.71, I will be looking at 451/452 Call Spread, and the 450/449 Put Spread combination with a combined price of $0.73, and the 452/453 Call Spread, 449/448 Put Spread combination with a price of $0.46.

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