Replies to post #23515 on Cycle Trading

[Duma]

To capture more profit, i am thinking buy strike way in the money like 5 to 10% of stock price, 2 months out, and keep selling out of money 7 days out until the long call becomes free. need to work on the right strikes.i am thinking to have good width between long and short strikes, that way if all become in the money, then at least the width of the strikes will be profit.

That is exactly the strategy that I am working on.

Disappointed that my IWM spread is not up more this morning ($5-6). I am studying to try and figure out what went wrong.

Going to put some more time into it today.

[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.