lobwedgephil said:
Well done today, thanks for sharing, Curious though, why do you play SPY so far out of the money, just to lower your risk? You have great charting, great entries, seems like closer to the money would be much more green.
Morning. A little long but hope this helps how I approach it.
No not to lower risk as it doesn't matter if I buy ITM, ATM or +5, +10, etc. the amount is based on RR. What is my risk level (cut) and what are my target (exit(s))on a ratio basis. I am looking for the best RR on a % basis. I don't take a trade based on $ in the trade but the amount of risk in the trade.
Example would be I have $2k in options in a single trade. My risk isn't $2k but the cut point. Let's say I cut because it loses a key support level and that equals $500 loss. My risk is $500 in this case. I am not looking for trades that the upside exit has me out at $2,500 or a 1 X 1 ratio. I will pay attention to Delta, Theta and I keep a chart up on my trading screen that is set to the option chain. I will look at the price of that option on a chart compared to the share price at that same time through the period I am looking at. If the share price dips onto support and holds and the option price on the chart reflects close to low of day, those are entries with a cut at loss of the share support level. I will also watch where the option volume and OI is at.
Yesterday I played the 5/20 410C on the open with a hold over. I exited quick above $3. As the day went those moved around between basically $2s and low/mid $3s. 30-35%...ish swings so not a lot of risk downside movement nor upside unless a big move which I didn't see happening chart wise (daily view). On the other hand the 5/20 420C had huge volume and moved between .20-.40s. 100% swing movement. I never thought they would go ITM but knew my exits would have a higher RR even within the days range. The closer to the money had less volatility risk but also less upside potential. RR was better for me the way I trade scalps anyway. Each day is different and each strike is different.
However, the closer to expiry the closer to the money I generally take to minimize premium crush and a more balanced delta/theta. Today I would go closer to the money as they will get hit harder. Of course lotto Friday doesn't apply. Those I try to target a move to ATM or ITM based on SRs.
Here are those two charts:
Hope that helps.....
Wealth gained hastily will dwindle. but whoever gathers little by little will increase it.
Proverbs 13:11
