Quoted from pinballjah:
Ok, so you really haven’t provided any real details on the spreads you are doing. Call you are buying, call you are selling. Are these trades just OUTM calls expiring on the same day? You are just selling the calls and hoping they expire the same day worthless? Strategy would work great until one of them blows up. Thanks.
Like I said in my initial post there's so many variables it's crazy. So much.
But I did mention I'm selling Vertical Call spreads, as well as selling Vertical Put spreads
So by default, there's two legs executed at the same time, example, with AAPL last week:
When it tanked on the open I sold:
Vertical Put Spread on Weekly March 27 expiration
Sold the $235 Out of the money Puts for $0.37
Bought the $225 Out of the money Puts for $0.09
Net credit back to my account of $0.28
I sold 100 contracts of that spread and others that day. That means I risked $100,000 to make $2,800.
Now that's where people say holy hell! That's crazy! So dumb. And they are right . Why? Because they don't know how it works and it would be dumb if you don't know what your doing.
But my risk to lose that trade was for AAPL to collapse under $235/share by end of the trading day. If anyone knows AAPL, that would be a huge fall from it's low of the day which was around $248 or so when I sold those puts.
It was worth me putting up the capital to bet against AAPL closing over $235, which it did.
So then it went from $248 where I sold the vertical put spread and collected a nice premium due to a spike in Implied Volatility, then when it ripped back to $252 and $254 I did the opposite and sold 50 contracts of Weekly March 27 $270/275 strikes but CALLS instead of Puts. Sold the $270s and bought the $275s... Credit of $0.22 to me. If anyone has heard of an Iron Condor spread strategy I guess it's somewhat similar, but normal Iron Condors suck.. this is just a more optimized way of doing one.
All expired worthless so I keep the credit.
Yes you need a relatively large account to make decent money
Yes I could have lost in order to make $5875 on those trades Friday:
Keep in mind. AAPL would have either had to close under $235 or over $270
Also, had I seen something to see id be wrong I'd close them out quickly to minimize my loss, usually when it's 50% of what I'm expecting to make. If I'm in the red $2500 already, I'm out. Period.
Both of which seemed impossible to me given the market resistance levels I've shown here on the charts I've posted.
A lot goes into it. It's not for the faint of heart and I don't recommend anyone doing this style of trading unless you know what you're doing. It's a style large hedge funds and firms use, but just at a smaller level.