Cycle Trading

[Duma]

I think you have missed what I have been doing with ROKU since Nov. This is what my strategy has been. For ROKU I sell a call 10-15 ITM call and then buy a call 30 less than the sold call. My cost runs about 25-26 so that I net 4-5.

In your case you wrote a call 9 under the market and then bought a call 5 under the sold call. Same thing.

I think it is a great strategy and plan to keep using it. By writing the call ITM, it provides a lot of safety.

But I do have have some comments/suggestions about what you did last week.

*** I am surprised you were able to buy a 92/97 call spread with the market at 106 for only 3.97. The market is at 97 now. A Fri 83/88 call spread now would cost 4.45. I used the same 9 under market for 88 call sold and 83 for the write call 5 less. I don't doubt you did it, but it is not available now under the conditions I am looking at. I imagine you had more than 4 days in the option spread.

*** So with what you did, your max loss would be what you paid 3.97. I guess there is some security in that, but you are watching the market, one can always bail if the market turns really bad. Basically the profit is the TV of the option sold minus the TV of the option bought. By doing a wider spread you can reduce the TV of the option bought.

Example
market 96.85

 
              OPT   TV 
 sell 88c    9.93   1.08 
 buy  83c   14.70    .53 
 cost        4.45  
 profit       .55    .55

If you would buy a 78 call, I am sure you could get the TV down to at least .10, which would give you another .40 profit. Yes you have a bigger risk, so may not be something you want to do.

*** If I look at the TNA 60 min curve, it crossed 106 three times recently. In all cases, M65 was dropping. Not a good time to write a call spread. Why not do a put spread?

*** You said that your trade gave you a 25% return, $1 on a $4 investment. I totally don't look at it that way, but doesn't mean I am right. To me and with my higher spreads, I feel I am on the hook for whatever the bought call was. In your case the call was 83, so you were on the hook for $8,300. Your profit was $100, so you made a 1.2% profit. Do that 52 times and you got an annual return of 63%. Now if you told me you had a $20K account and you invested 50% of your account in 50 options spreads, then I would let the 25% profit slide because you really did bet the farm.

As I said above I have been doing this strategy since Nov making $300-$400 a week. Last week was the first week I lost money, $200. Market was at my strike at the open Fri and I was leaving for the day. I had a 315/345 call spread. With the price at 345, I had planned to sell the 315 call and let the short call at 345 ride. If market went down, I collected all that I had sold the 345 for. If market went up, I bought 100 shares at 345. I was goo with either. But as usual I screwed up and instead of selling the call, I bought the 345 call back. Once I did that I was screwed and just sold the call for a loss of $200. Since I have made something close to $4,000 this I started this game, I am fine with the loss.

Looks like I am going to play another game of chicken this week. I opened up a Mar26 315/345 call spread for 26.65. ROKU was 360.65 and has since dropped to 355.62. If the price hits 345, I will try doing what I should have done last week, sell the 315 call and stop the bleeding. Net delta runs about 20%, so the drop since I bought is really not that bad. I am watching my 60min chart. With M65 rising, I consider this trade worth trying.