Short term
Trade view / 01 June 2016 at 1:31 GMT

Sideways shift calls for short vertical call spread on E-mini S&P 500

Product Manager, Trader, Educator
Denmark
Instrument: ESM6
Price target:
Market price:
Trade idea background

We are initiating this 10 point wide vertical call spread on the E-Mini S&P 500 with the assumption that the index will trade largely sideways over the next two weeks. We would therefore benefit from the neutral view of the market and the time decay of the option sold. Although a rally in the underlying index will hurt our trade, our losses are limited to the width of the calls spread minus the credit received. 

E-minis
  Source: Saxo Bank


Management and risk description

*The trade requires an expert level approval from Saxo Bank

Both the profit and the loss in a vertical call spread are well-defined. If the underlying price moves above the short strike price before or at expiration, we could be assigned on the short call. At the same time we could exercise our long call in a "same day substitution". The E-Minis options are American-style.

Parameters

Underlying Price: 2100 

Sell 1 ESM6 2125 Call at $7 June 16 (17 days to expiration)
Buy 1 ESM6 2135 Call at $4.25
--------------------------------------------------------
Net Credit  $2.75

Maximum Profit (at expiration) = $2.75 x 50 x 1 ( $137.50/contract)

Maximum Loss (at expiration) = $7.25 x 50 x 1 ( $362.50/contract)

ROR= 137.50/362.50 = 38%


Entry: Today.

Stop: No stop. 

Target: Underlying to trade below short strike price. 

Time horizon: 17 days.


— Edited by Susan McDonald


Non-independent investment research disclaimer applies. Read more

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