<p>“What I would do today is to buy an at-the-money August 135 put for $4.59, and sell two out-of-the money puts at the August 125 strike for $2.26 each. This trade enables a trader or investors to hedge their portfolio without having to pay anything for the hedge, and this trade is short volatility as well.”</p>
<p>This is an interesting trade. If it goes below the 125 strike, roll it out.</p>
<p>Obviously…you didn’t get that idea here… :)</p>
<p>No but you suggested a similar trade before - its a good idea</p>
<p>Yeah…i do similar kinds of trades…</p>
<p>I don’t think i want to go into aug thou…</p>
<p>That trade is a .03 credit…</p>
<p>What are the same strikes in jun? The same strikes in Jul…</p>
<p>Can you do those trades for credits?</p>
<p>Edit…oops …there is no credit…it is a .07 debit…</p>
<p>I want credits…:)</p>
<p>I have to look at this tonight but its a good way to protect yourself vs just buying puts or the regular put spread. 125 may not be a bad price to be assigned.</p>
<p>Does give you decent downside protection…</p>
<p>Your breakeven is down around 115…</p>
<p>One thing I do with these trades is look what happens over time…I want time to work for me…</p>
<p>so…if everything is the same in a month…which I admit is a stretch…looking at the julys</p>
<p>In one month I can close that trade for an .80 credit…so using your numbers…i would make .80 - 07= .73 profit in a month…</p>
<p>I like that…</p>
<p>Except…that initial spread can no longer be done at those prices…</p>
<p>Instead of paying .07… It is more like .35 to .40. So the profit might be .40… Not bad…</p>
<p>When you get a chance…
Check out similar spreads…the may, jun spreads and july spreads when you get a chance…to get a general idea where this spread might end
up…</p>
<p>One thing about this trade…margin…I don’t know if I want to tie up capital…then again…I don’t know how much capital would be tied up…:)</p>
<p>I can only sell cash secured puts but of course, I can’t use the cash to buy anything.</p>
<p>Ok…so…if you sold 5 aapl may 550 puts…how much do you have to put up?</p>
<p>275,000?</p>
<p>If you did this spy spread… 5 by 10… You would have to put up approximately …not an exact number…12500 times 5 or 62500?</p>
<p>Maybe its some percentage but its irrelevant to me. On the spy spread, 5 puts are not covered, I would put up as you pointed out 62500. I don’t trade what I don’t have in my accounts so I don’t use margin ever. I never want to be in the position of losing more than I have in an account and even at that I don’t make big bets - I’m a singles hitter not a home run king.</p>
<p>I understand …I am a singles hittter too…</p>
<p>What I don’t want to do is tie up 62500 to make a tiny sum…</p>
<p>I am looking at return on capital…</p>
<p>I like doing these spreads for credits rather than debits…because if the spread closes out of the money…I still make money…I get paid for doing the spread…</p>
<p>That is a personal preference…</p>
<p>The spread you mentioned gives you downside protection…up to a point…</p>
<p>nearly 2% over 3 months is not tiny to me - 2.26*500/62500 = 1.8% and it gives me downside protection because if the market drops, I’ve collected that premium and will roll it over into a later date. I would be happy to get 2% every 3 months on my acct forever from here.</p>
<p>I don’t use all my capital …but…I sold 4 apple puts in my IRA…and my IRA doesn’t have margin…amd I was surprised by how much capital I had to put up…$220000 for something that makes $200. It was for a week…but that is not a huge return…</p>
<p>What pullback?</p>
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<p>Doct…i don’t know why you are assuming you are going to get that premium…</p>
<p>The trade costs money…</p>
<p>4.59- (2.26x2)= .07</p>
<p>As a type this…</p>
<p>4.39- (1.99x2)= .41. </p>
<p>Trade is moving a little bit…</p>
<p>
</p>
<p>Why are you writing the options? Why can’t you just buy the spread? make $200 for the risk of 220,000 is not worth it. IMHO</p>
<p>Which spread?</p>
<p>No…it is not worth it…</p>
<p>spread of call and puts. You buy same number of puts at X and calls at Y if the stock fall off the spread, you are in the money. if not you will lose some but not all.</p>
<p>Right…that is a totally different trade…</p>
<p>I didn’t want to do that trade…</p>
<p>You can lose all…Depending on which puts and calls you buy…</p>
<p>I was referring to just selling the puts not the whole spread</p>