This week, we'll begin a series on position building. We will use SPY as our underlying asset, and our investment capital will be a hypothetical $10,000. The question to be addressed is, "How can we deploy the ten grand into an options-only position and manage it with capital preservation as the top priority and material profits as the second priority?" We will answer that question by way of continuing example.
We'll begin with the position above, which represents an SPY Jan08/Dec08 calendar spread. The net investment is $1,083, which is 10.83% of our initial capital. Directionally, this trade is bullish. However, rising prices could bring implied volatility lower, which would hurt the trade. We will discuss how the position is behaving and why as we build it over time. This challenge in building a profitable position, while aiming to keep our capital base largely in tact, is sure to be both fun and informative.
We'll see how the position is looking next week, and if we took an opportunity between now and then to make an adjustment.
It is our pleasure to offer OLI readers this exclusive offer to save 59% on our educational video: "Investigating The Covered Call". When ordering, just type "OLI" in the "promotional code" field to get the entire video for just $20. Learn More | Order Now
Weekly Newsletter
printer-friendly format