Cycle Trading

[Duma]

After working several days to develop what I hope is a really good Black Scholes model and playing around with various setups, I settled on one that I wanted to try out.

I also worked to determine what kind of range for one week yields I could expect. Using the last 6months as history, I came up with a mean of 1.3%, and a SD of 1.3% also which means the expect 1 SD (68%) yield range would be -.8%-1.8%. The 2SD (95%) would be -2.1% to 3.05%.

I bought a long SPY Dec17 432 call for 17.64. del .606 67 days IV 15.2%
Then I sold a SPY Oct18 442 call for 2.21. 7 days

My target profit is around $200. I will have a mental stop around -$100.

The table below gives the 7 day profit expected vs yield and strike for 7 day option. The yellow is what I executed. As you can see when I go outside the 1SD limits, results are not good. I really should have gone with a 443 strike because it fits my profit/loss targets better, but I was more conservative.