SPY Credit Put Spread

That was quick.

My order was filled in the first 60 seconds as the difference in the 102 ask hit 49 cents and the 104 bid hit 36 cents for the 13 cent credit. I likely would not have got my full 15 cents on this one due to the price jump in SPY...it may have come in later but I decided that I will work my minimums, not get greedy and aim for easier fills as a result. I will end up getting fills in future at better than my minimums. I already see the effect of that over at Optioneer as I have one order that hit my target and two that exceeded them. Also, my other Questrade spread was filled above my minimum but that was just arbitrarily picked at the time the order was placed.

The trouble, not really trouble I guess, with Questrade orders is that they are just limit orders and will be filled at the very first opportunity. Optioneer orders are worked a bit to get better than limit order fills if it can be managed...they also have some volume of orders to work with whereas Questrade is just placing my order by itself...more or less.

I will need to double check my numbers for January expiry's now so I know what trades I will want to take. I think that I will plan to have all my margin capital in spread trades by the end of December... with the one December EOM expiring to be applied in early January.

I guess my sector plan may take a back seat for a while. I may still try to get it rolling but more in a manner to allow me to trade spreads based on sector performance rather than trying to trade for stock appreciation. It may be enough to spread trade SPY.

Looking at the greeks for a moment. As much as they are talked about when it comes to trading options I think that often they are overrated depending upon the strategy being applied.

The 102 strike put has a delta of -0.104 and a Theta of -0.029
The 104 strike put has a delta of -0.151 and a Theta of -0.034

Taking the differences makes this trade have a combined delta of -0.047 and a Theta of -0.005

In theory that means that when SPY moves $1 the trade should move 4.7 cents. Because I am working from selling premium the delta is important in that as the price moves away from the 104 strike it indicates the DEPRECIATION of entire spread trade...depreciation is my friend as it means that the trade, should I decide to close it, would cost me 4.7 cents less for each dollar the SPY moves up...the reverse is also true. But I do not plan on ever closing these trades as I want them to expire.

On the Theta, for each day the value increases 0.5 cents. This really means that the trade becomes cheaper therefore increasing the value to me, the seller. Adding the theta and delta together can give me an impression as to the future movement of the total cost to close the trade.

Higher Theta means that I will see premium retention quicker while higher Delta means that there is greater risk in underlying price moves and there may be greater depreciation as well, that one works both ways.

Rather than really getting into the greeks I find it easier to just look at the actual prices of the options as time progresses. My long protection option depreciates slower than the short sold option and I see the difference in rates and values as money in my account. That is much simpler.

Jeff.