Broad market support?

Will the 50 MA provide support?

I was speculating, over the weekend, the relative risk of the RUT versus the IWM.

 So, I created a spreadsheet that computes profit, risk, probability of success and return on investment.

 I think the results are interesting.

 Assumptions:

• Successful trades are removed at 90% of their profit potential ( commissions on both sides)
• Unsuccessful trades are allowed to expire (commissions only on entry)
• All trades are vertical spreads and thus have two legs
• Commissions are $1.50 per option

  

 On the IWM trades I tried to match the profit potential of the RUT.

 As the spread increases and the number of options, so does the risk, while the ROI decreases.

 It would appear that a single trade on the RUT is actually much less risky than putting on 15 IWM trades over a several day period.

 What do you think?

 

 

 

OIH – Oil Service Holdrs

Sell APR Call vertical	-190 / +195
Credit $1.25	Spread $5.00
Probability of success	72%
Short delta	.33

WLT – Walter Industries

Sell APR Call vertical	-70 / +75
Credit $1.10	Spread $5.00
Probability of success	75%
Short delta	.35

 

 
 

Generating Monthly Income

Let’s say that you want to generate monthly income by trading spreads or iron condors. You could get into a 2-wide spread iron condor on SPY or DIA for $.70 credit, with 60% probability of success. And you plan to exit when the trade has reached 80% of its profit potential (exit prior to expiration).

 Net profit on a single trade would be $46. 

Max profit	$70
Commissions	$12	8 * $1.50
Profit at expiration	$58
Profit at 80%	$46	Approx.
Margin	$130	$200 – $70

 So, if you want to make $1,000 / month multiply the number of contracts by: 22 

Max profit	$1540
Commissions	$264	176 * $1.50
Profit at expiration	$1276
Profit at 80%	$1012	Approx.
Margin	$2860	$4400 – $1540