SPY and the Bull Put Credit Spread

I modified my spreadsheet to include put calculations today. I was concentrating on the call spreads just because I needed to start somewhere.

Seeing that the call spreads would benefit from having the SPY price closer to the top of the current regression channel I figured that it would be a good time to check the puts...I was not disappointed.

I chose to check the January expiry's first but the timeline is too far out to be comfortable as I would like the trades to be in the 30 day range or shorter if I can manage it. So I also ran the December EOM.

Based on my range finder the calls at the SPY $110 level should be at 115 strikes sold for EOM and the puts 105 strike sold. For some reason I look at the chart and I don't like the call level still... perhaps I should add a trend factor in there. I did add an adjustment for the price position in the trend or regression channel. Time will tell how much I may have to adjust these factors.

Anyway, back to the puts.

I decided a while back that $10 days for trades risking $5,000 are my minimum target, (Optioneer), breaking that down to smaller trades puts me at $2.40 per day at the $1200 mark assuming that I can keep my money working for me regularly. This is roughly what I expect to use in my SPY trading as a risk allowance. This doesn't convert very well to an overall ROR as it depends upon the timeframe...as long as the daily dollar target is met the rest looks after itself. It is a 0.2% daily ROR though so a 30 day trade should return 6%.

Using that as a minimum guide I ran the various strikes at the various spread values and I can now just scan down the chart to see what the minimum credit trade would be to accommodate my minimum target. As of today's close prices a 104 strike put sold and a 102 put bought would provide $3.09 per day over the balance of the month...22 days. Seeing as the premium collected is based upon the difference in the prices of the two options a longer expiry should have provided a similar result.

Using the chart for minimum targets allows me to assign a better risk model as I can use the absolute farthest strike from the price and I don't really need the whole range calculation at all. Now trial and error can be very expensive in this so I will have to be nimble if this puts the spreads too close and they start coming under pressure form a larger price move than I anticipate. All I need to do to adjust is lower my daily minimum target and the trade moves farther away on it's own.

A quick comparison of the SPY puts.

December EOM
Sell to open Dec EOM 104 strike and buy to open the EOM 102 strike for a 15 cent credit.
21 days left, $3.24 per day, 6% overall.

January expiry, 3rd Friday
Sell to open Jan 104 strike and buy to open the Jan 102 strike for a 28 cent credit.
36 days left, $4.06 per day, 13.86% overall.

Sell to open Jan 103 strike and buy to open the Jan 101 strike for a 24 cent credit.
36 days left, $3.39 per day, 11.32% overall.

Sell to open Jan 102 strike and buy to open the Jan 100 strike for a 19 cent credit.
36 days left, $2.56 per day, 8.31% overall.

Jeff.