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June 27, 2013

$RUT Weekly Trade

  • Strategy: Calendar spread
  • Underlying: RUT
  • Trade: BUY +1 CALENDAR RUT 100 (Weeklys) JUL2 13/JUL1 13 970 PUT @4.10 LMT
  • Trade Price: 4.10 debit per spread
  • Margin: $410 per spread
Risk Profile:
Screen Shot 2013-06-27 at 9.59.55 AM
Screen Shot 2013-06-27 at 10.00.08 AM
We are selling 970 PUT that expires next week (Jul5) and buying 970 PUT that expires the week after(Jul12). Options that expire closer in time will decay faster than those that expire further out in time, so we're taking advantage of time decay here. Assuming RUT doesn't move 20 points in either direction by Monday of next week, this is what this trade's risk profile should look like:
Screen Shot 2013-06-27 at 10.08.29 AM
Our goal would be to get out by Monday with about 20% (of margin) profit or$80, and we don't want to lose more than 25% (of margin) on this trade or $100.