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Friday, March 20, 2015

Spiders (SPY) Ratio Put Spread

2/18/2015 (11:28:03 am, PT)  

+2 March 2015  $209 puts at $3.33
-4 March 2015  $206 puts at $2.34

Reasons for placing this trade:
  • SPY was in the "overbought" region of the stochastics, so I was semi-bearish
  • the $206 puts had a 63% probability of expiring OTM
  • I received an initial credit of $1.35 ($270)

Here's the lesson:
  • As long as SPY continues to rise and closes above $209 on 3/20 (expiration), I get to keep $270.
  • If SPY drops anytime between 2/18 and 3/20, I have the opportunity to sell (to close) my two long puts ($209 strike), take my profits, leave the four short puts "naked" and hope that SPY closes above $206 on 3/20 (exp).

What actually happened:
  • On 3/10/2015, my preset "sell-to-close" order for my two long puts ($209 strike) filled at $3.75.  It was sort of unfortunate because SPY continued to drop.
  • On 3/11, the $209 puts hit a high of $5.72, but I missed out because I had already sold my $209 puts.
  • On 3/20/2015 (expiration), my preset "buy-to-close" order for my four short puts ($206 strike) filled at $0.01.  Hurray!
  • SPY closed at $210.41 on 3/20 (exp), so it's a GOOD thing I had sold (to close) my two long puts on 3/10 and captured an extra $726.



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