Theta Trend

Disclaimer:  This is not a recommendation to take a trade and is being provided for educational and informational purposes only.  See the full disclaimer.

Update 7/10/2014, 4:50 am MST:

The /ES Futures are trading close to 1% lower this morning and that creates a new lower low on the 65 minute chart.  If the market remains at roughly the same level, SPX should open in the high 1950’s.  An open at that level will reduce the risk in the trade because price will be much closer to the stop level at 1949 and also increase the likelihood of getting stopped out.

Update 7/10/2014, 10:06 am MST:

I’ve been away from the computer all morning, but I did sell a SPX July 14 1900/1890 put spread for a .45 credit.

Update 7/14/2014:

Closed the 1900/1890 spread for a .10 debit.

Video:

Who wants to sell a put spread?  After making new all time highs last week, the S&P pulled back a bit on Tuesday.  However, the longer term trend is still bullish and the long signal on the ATRts is still valid.  Interestingly, SPX is trading around the same price as last week when my trade was filled.  The difference this week is that the ATRts has moved up and the stop level is roughly 1949.  A close below 1949 invalidates the trade.

The video below gives a visual overview of the Weekly Theta trades I’m considering.  Note that the vertical I sell will be influenced by where price opens in the morning and how it trades in the first half hour to hour of the day.

The Trade:

SPX closed around 1972 today after gapping up at the open and drifting higher throughout the day.  Based on closing prices, it looks like I should be able to sell a July put vertical with the short strike somewhere between 1915-1925 and, as usual, I want to receive at least a .45 credit.

Chart:

Risk and Targets:

At the time I place the trade, I will also put in a GTC order to buy back the vertical for 80% of the credit sold.  For example, if the vertical is sold for .45 I will be putting in an order to buy it back for a .10 debit.  Additionally, I’ll set an alert on the price of the vertical for 80% of the credit in heat (about $35 on a vertical that is sold for .45).  Note I put an alert on the heat below the level where I expect to get out so I have time to anticipate an exit before it becomes a necessity. If the trade taxes 110% of the credit in heat and/or price closes below the 1949 level, it should be closed.