[Opening Bear Call Spread on SPY/Simultaneously Buying to Open Nov 122 Calls (SPYKR) and Selling Nov 121 Calls (SPYKQ)/Day Order/Limit Credit of $0.30]
Dear Member,
I am placing an order to open a bearish call spread on SPY for a net credit of $0.30 a share (before commissions). If filled, the return on risk would be 42.8% before commissions in just a couple of days more than a month. I am buying the Nov 122 calls (SPYKR)as the protective leg and selling the Nov 121 calls (SPYKQ)for income.
Since I am selling the 121 calls and buying the 122 calls, this is a $1 spread (the difference between the two strikes). My initial risk before the market pays me the credit, therefore, is $1 x the number of contracts x 100 (which is the number of shares per contract. So if I did 10 contracts, my initial risk would be $1000. However, since the 121 calls I am selling are more expensive than the 122 calls I am buying I expect a credit of $0.30 per share before commissions. Using the 10 contract example (for convenience of math), I would take in $300 before commissions ($0.30 x 10 contracts x 100 shares per contract) and that would reduce my risk to only $700. If the spread order is filled, I make no adjustments, and hold until November expiration, I will have enjoyed a 42.8% return on risk before commissions.
DISCLOSURE: At the time of publication, I have not position in the referenced options or the underlying stock.
Sincerely,
Bill Kraft for
CutLoss, Inc.
|
