Here is a question that I received today that I think would be beneficial to share with the rest.
Question: "Is there any downside to making a small trade for a quick buck? I know it's based on risk but .... Here's an example:
I can possibly trade Visa (V) sell open $252.5 and buy open $247.5 with a credit of .36 spread w/ expiration March 20. If I trade 10 contracts that would return about $350 after fees. The likelyhood to drop 14 points isn't very likely in a week.
Any thoughts..."
Answer: We've all been tempted by the fast trade. Here are my thoughts on this one. Basically for the trade to work out, Visa needs to stay above 252.5 in the next 10 days. That's a price buffer of 4.5% or so from current price (265.5). Sounds easy enough and the theoretical odds are supportive of it. The theoretical chance of success is 95%. The payout is about .25 in premium per contract. That's a yield of 5% on risk in only 10 days.
But I have a few cautions: