A little Lesson about Option Probabilities and how to save Buying Power

in #busy6 years ago

Hi steemians,

we have seen some action in the markets recently.
I still had a September position on in SPY, so I took advantage of today's down move and moved it to October.

First let's have a look at the September position.

September SPY Broken Wing Butterfly

SPY 1.jpeg

source:tastyworks

I collected $2.19 for this trade, so at the moment this BWB is down $2.79 ($279 per one lot).
My break even for this trade is:

short strike + plus width of the imbedded long call spread + credit received

282 + 2 + 2.19 = 286.19

So I need SPY to close at 286.19 or below at expiration in order to get out off this trade without losing any money.

What's the Probability of scratching this trade?

In order to find out, we have to take a look at the option chain.
SPY 4.jpeg

source:tastyworks

As you can see, the 286 put has a delta of 0.38, so the probability of SPY closing at my break even in September is roughly 38%.
Definitely not high enough for me.

Closing September BWB in SPY

SPY 2.jpeg

source:tastyworks

Today I bought back my September BWB in SPY for a debit of $4.98.
So I realized a loss of $4.98 - $2.19 = $2.79 ($279 per one lot)

Short SPY Call Spread in October

After Closing my BWB, I sold the October 288 Call.
This would have cost me over $5,700 in buying power.
Therefore I also bought the 309 call for 10 cents.
My net credit on this position is, as you can see below, $3.93.

SPY 3.jpeg

source:tastyworks

My probability of profit on this trade is now 60%.
In order to make up for my previous loss of $2.79, I need this position to trade for $1.14 or lower.

Saving Buying Power in QQQ

As you have seen last Friday, I am short the QQQ October 175 call, which almost costs me $4,000 in buying power.

QQQ 3.jpeg

source:tastyworks

At the moment this position is down $2.84 ($284 per one lot).
This position already came back a lot and it is also protecting my short vega positions.
But $4,000 in buying power is a lot.

So today I spent 10 cents ($10 per one lot) and bought the 200 call in October.
QQQ 1.jpeg

source:tastyworks

Now I am short the October 175/200 call spread and my buying power reduction is reduced to $1,740.

QQQ 2.jpeg

source:tastyworks

We'll see if my short delta positions will work out this time...

Have a great trading day,
Stephan Haller



Legal disclaimer: These are not trade recommendations. Options involve risk and are not suitable for all investors. The trades shown above are for educational purpose only.

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