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.

Long Term RUT Trade

First let me answer the term "long term" and what it means to me. Long term can mean many different things to many different traders. I like to think of long term as 3 months, and 3 months is a long time in my opinion in the option market. Most of my trades that I set are front month options, but I like to have some long term strategies working.

Below is the chart of the $RUT and we are getting very close to a resistance point around the 650 level. Now I have been hearing a lot about this Lehman Brothers gap, and all about the heavy supply above that level. I would not be surprised if we bounced around that level before we either break higher or have a 3-7% correction. Also the $VIX is getting to the lower end of the channel which might signal a sell signal, unless we just bounce around like we have in the past, just keep your eye on a $VIX above $25.

Based on seasonality bullishness I like this ITM debit spread on the $RUT. At 90% probability of profit and very low management style, its a prefect candidate for my "long term" strategies. I also like credit spreads below 500 for Nov, and I currently have a calendar spread on the $RUT and I will be sharing more about that in a later post.