SPX Credit Spread Filled

Our SPX credit spread has been filled. We sold the 1,375 put and bought the 1,365 put for a .70 credit. This is a 10 point spread. The total risk is 10 - .70 = 9.30. The maximum return (before commissions) is about 7.5%.

The delta of the 1,375 contract was about .13, which means that there is approximately a 87% probability of the contract expiring out-of-the-money. We will not allow that contract to go in-the-money and will adjust or close the position before the market reaches the strike of our short put option.

Our goal now is 1.) to sit patiently and allow theta to erode the value of the spread while guarding against an adverse market move, and 2.) look for an opportunity to sell a call spread that meets our criteria. Right now the market does not offer a sufficient credit for a spread at any level we would be willing to sell. The S&P 500 will need to move to higher price levels to make it possible.

Our analysis of potential call spreads will follow in subsequent posts.