The SPY Bear Call Spread

I find it interesting to watch the dance that my spread trade is doing while the market tries to figure out where it is going next.

I am at 116-118 and right now SPY is hovering just over $114. That only leaves me a $2 margin before I start losing profits at $116 and start losing money at $116.16.

Each morning the Theta number gets updated and the quotes are lowered by roughly the previous day's Theta. Right now it is about 0.045 so each day the short 116 call loses 4.5 cents per day, which equates to me making 4.5 cents per day. The market inches up and the option regains that loss...like I said before, the I need the Theta to outstrip the Delta. Even better is to just have SPY close on next Friday anywhere under $116.

The short option was worth an average of 25 cents. It is now trading at 27-28 cents and has been for the last few days even while SPY has climbed. Delta fighting Theta.

This leads me to consider using some sort of formula to calculate the risk factor associated with a particular spread trade using the Delta and Theta variables. More math but perhaps it can be of some help. I figure that most of this is already in when looking at the Average True Range and forecasting the future possibilities based on the time to expiry already...maybe it would be redundant... but maybe not.

Jeff.