A little Lesson about Option Probabilities and how to save Buying Power
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
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:
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.
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
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.
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.
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.
Now I am short the October 175/200 call spread and my buying power reduction is reduced to $1,740.
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.