Jul5 2015 SPX Credit Call Spread

Yesterday I entered a long-term position in SPX that does not expire until July 31, 2015:

Trade Details:

SELL 1 SPX Jul5 2275 Call @ 4.83
BUY 1 SPX Jul5 2300 Call @ 2.78
Credit: 2.05 ($205 per contract)
Days to Expiration: 132

I am legging into a longer-term iron condor position in the SPX. With the strength of the SPX on Friday, I thought it was a good time to open the call side of this trade. The short call has a 91.66% probability of expiring worthless and is nearly 170 points out-of-the-money as of yesterday’s close. I will wait for a small pullback in the SPX before adding the put side. I am currently looking at the 1750/1725 credit put spread to complete the iron condor position, collecting at least $2.00 in premium for this leg of the trade as well. My plan is to close the entire position in 6-8 weeks for 50% of the potential profit.

Chart_032115_SPX

As noted on the 2-year chart above, the SPX is clearly trending upwards in a channel. If the SPX continues to climb at this rate, the short strike on the call side (indicated by the horizontal yellow line) is not likely to be breached before the July 31 expiration. Despite this, I would have liked to have gotten a little further out-of-the-money, but above this level the strikes revert to 50-point wide spreads. I did not want to tie up $5,000 for the trade, so I chose the highest 25-point wide strikes that were available.

The 1750/1725 put spread (once added) will allow for over 350 points of downside movement in the SPX before being breached. Even if a 10-15% market correction occurs between now and the end of June, this position will be safe.

  • Jonathan

    I like this trade and I think you are wise to leg in. I do see some more potential upside next week but you will probably get a chance to sell the put spread sometime in the next few days. Good luck with this trade.

    @lienjonathan