This strategy is a swing trade strategy for buying/selling calls or puts on the SPY or any of the indexes. What sparked my curiosity was John Carter talking about this strategy. I have modified it to the way I trade and will study this with small entries. I will post the outcomes as soon as trade setups come my way. I can also run this as a credit play if I want to sell options and use theta and skew direction both in my favor.

SPY Index Skew Overlay
John Carter Presentation

More Youtube Videos

Directional Assumption

Bullish or Bearish

When to Run It

  • When SKEW crosses 135
  • When SKEW crosses 120

Setup

Debit Play

  • When SKEW crosses below 135 Buy OTM delta 30 puts
  • When SKEW crosses above 120 Buy OTM delta 30 calls

Timeline

60-90 days out

Profit Target

200% return or when skew climbs above 125 if I bought calls or drops below 130 if I bought puts.

Time Decay

As time goes by theta works against me unless I am selling options.

Maximum Profit

Potential profit is unlimited.

Maximum Loss

The cost of what I paid for the options.

Risk Management

This trade should be 1% or less of my account.

Tip

Note: It is okay to buy ITM options, I will just pay more and possibly lose more. The trade off being less extrinsic premium.

I can also run this as a Vertical Spread for a cheaper premium and smaller loss in case the strategy moves against me. The trade off is a smaller gain.

I can also run this as a credit play if I want to sell options and use theta and volatiltiy skew in my favor.


Categories: Strategies