Monday, November 30, 2009

ITM Debit

I know a lot of people don't like trading ITM debit spreads, because the deep ITM options are less liquid. And I agree, but the opportunities ITM are pretty sweet. The reasonings behind this strategy are simple, higher probability of profit. The OTM debit verticals should be played in a speculative fashion. Now having a spec portion in your portfolio is perfectly fine, but having a defined probability of 80% or higher is more desirable. Trading ITM debit spreads is not rocket science, but be aware of market direction before placing your position. Another reason I like this trade is the simple yet yield saving adjustments. The adjustment on this type of strategy is easy and after the adjustment is made you are turning it in to a long condor/long iron condor.

Trade Idea: Nasdaq 100 ($NDX)
The $NDX in my opinion is setting up for a move higher, as the 20 day moving average is acting as support. The break even on this trade is 7% lower then current market levels, giving this index room to fluctuate.

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