Yesterday I was looking at put spreads.
I think I could have done 29/30 for around a .29 - .30 credit.
And the maybe the 30/31 was around .47 - .50 credit.
Do you guys have any particular way you weight which one of these is better?
Myself, I probably would feel more comfortable with the 29/30 spread even though there is less potential pay off.
Hi XXAVATARXX. Have you ever traded a butterfly on AGNC?
The trade consists of buying the $31 call.. say... 100 contracts, then sell the 32 call for 200 contracts, then buy the 33 call for 100 contracts. Your break evens would be this... 31.20 on the low side and 32.80 on the high side. The debit cost would be 0.20. So total cost of the trade is $2,000.00. max profit is 8,000.00. This trade makes the most profit when the stock trades exactly at $32. Time makes the trade profitable as long as the stock is between those ranges. Another thing you could do is sell the $30 puts for 0.70 to offset the cost of the trade. Good luck to you.
Aside/warning on Butterflies...and all short option positions....
The short leg, which is the highest number of contracts in the Long Butterfly, may be assigned to you at any time. I had this happen to me on LINE last year. So, in the example given, you would be Long 20,000 shares at the 32.00 strike.
You still have 100 long 33 Puts, to exercise, to offset the position but if we crash down in PPS(say to 28 again) before you can do that, your brokerage might close out your position, if you don't have the purchasing power to cover the $640,000, and then the PPS rebounds to 32.00. You just lost $80,000.(exercising the 33 at that point will give you $10,000 profit, on the 33s, for a total loss of $70,000).
Food for thought,
Look back at my thread re short Puts the last few days. I rolled my 31/30 I had for .45 and my 33/32s @ .64 for 37/30 and 37/33. I believe the 37/31 , right now, @ over a 5.00 credit and less than a 1.00 risk is pretty sweet. BE just below 32. We hit 34 and you make 2.00+. If 33, you make 1.00. If 35.00 you make 3.00 Woohoo!!!