Building on the research engine underlying the Day of the Week Analysis script, I have crafted a study to help select weekly option credit spreads. Weekly options present another opportunity to sell credit spreads as part of an income generation strategy. I rarely touch the long side of weekly options but it seems there is no end to the demand for them :twisted. Far better to be on the selling side of this equation in my opinion. The question then becomes, what is a Safe distance from the current price to sell a credit spread? The term safe is a bit of a misnomer as nothing is ever completely safe in the capital markets. However, doing some basic analysis one can see what historically safe ranges are given the number of days left to expiration and then sell spreads with a little mathematics on your side. There are a few ways to go about this task. One could use implied volatility to make the calculation or, as I have chosen here, one could look at historical movements in the chart itself.

In this study the user enters a few parameters about the symbol being charted (weekly option prefix, strike spacing), the size of the credit spread (e.g. $5 as shown here on AAPL), the analysis days to expiration (1-6 starting with the prior Thursday), the number of standard deviations considered Safe, and then the study presents both a put and call credit spread option along with an estimate of the current spread price.

40 Comments

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adamgreen — October 7, 2012

Sorry, Id forgotten the connection. I looked over the stuff at aapltrader hes been reading Jeff Augen. Of course, theres more than one trader on this bent of finding patterns, brief, recurring price anomalies, etc. especially in aapl. I think theres something to it, but its all pretty hard work.

As for tastytrade, I recall what you mean and I want to be clear to chance passerby readers that its unrelated to their trading (and fortunately, that dumped that whole business model and rebuilt their superstore.)

Im looking forward to improved option data from ondemand being available to thinkScript, though I fear theyve not kept enough strikes of historical tick data for my purposes. Since many tickers (of interest to me) trade so close to theoretical, and Im not fussing over a percent here or there, its good enough.

As for this latest work, WOSA do you have a way to plug in a generic lower study depicting FPL, trade P&L, max drawdown, etc.?