AMZN 7 DTE 15/10 delta Short Put Vertical Spread Strategy
Directional Assumption: Bullish
Sell 1 Put on Friday at 15 delta
Buy 1 put on Friday at 10 delta
Close: Buy Back the Spread at a 50% Profit
Stop Loss: 3 times credit received (300%)
** Note: On an investment of $3928 (buying power), this trade generated a 347% profit.
This is a 3 1/2 year study from January 1, 2018, to August 2, 2021.
I focused on these dates because of the big drops in the markets that occurred in 2018 and then again in 2020.
AMZN outpaced the markets those years and is still going strong.
You can view/download the trades here.
Here are the overall stats of the play.
Why I chose to close out the trade with a max profit of 50%. Upon backtesting the maximum profit at 50, 60, 70, 80, and 90 percent, the 50% mark seemed to be the sweet spot.
Now that I have chosen 50% maximum profit, it is time to look at what stop loss I want to use. The sweet spot appears to be at 300% (3 times the credit received). Notice that placing no stops gave us a higher win rate, which means less management, but at the cost of profit.
AMZN has been an excellent and consistent weekly income generator for the past 3 years, even with the 2018 and 2020 crashes.
On an investment of $3928, this trade generated a 347% profit.
A put sold at 15 delta sets this trade around 1 standard deviation in relation to the underlying stock movement. With stop losses in place and closing at 50% maximum profit, this trade offers a high win rate and an excellent return on capital.