That's a pretty risky strategy. S&P only needs to go down 1% from your entry point to where you start losing money. I guess prices of options have really gone down since the volatility has been so low. If I'm risking $2000 to make $400 I'd want to be near 100% sure of the probabilities going my way. At-the-money put sales aren't really that. Best of luck to you though!
A 1% drop would more or less be break-even, so yes, below 1% is where you'd start to lose money. Unfortunately not near 100% going my way but when the trend is positive SPY closed the month up nearly 70% of the time (since 1994).
Originally Posted by Argonaut
Hmmm that might be a good idea, do you have to register with them to do it? Although that would be more practical, I think it might be more realistic (ie: paint a truer picture) to test with my current broker. I suspect Interactive Brokers has lower commissions, better margin and probably spread orders as well. For professional reasons I'm unfortunately not able to hold an account with them.
Originally Posted by james4beach
I do have the proper information for bid/ask spread and market depth with my current broker. This is basically never a concern with SPY, especially if your trading within a month out. Tons of liquidity and tight spreads. Even so I'm "filling" at the worst possible price (bid on the short puts, ask on the long puts).
Man, volatility is super low right now. Today's trade:
March 20th trade:
SPY price 236.97
2 Short April 13th puts - 237.00 strike: price per contract = 1.85, premium received = $369.55
2 Long April 13th puts - 225.00 strike: price per contract = 0.36, premium paid = $72.45
Net premium received = $297.10
Realized profit (loss) to date = $nil