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.
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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