Alternative to credit spreads

TskTsk · Jul 9, 2012

Say I feel the ES isnt going below 1300 this month. What would be the best trade to exploit this in terms of RR and minimizing margin (giving high return on margin)? Is a credit spread my best option?

1245 · Jul 9, 2012

You could sell an ATM call spread and buy an OTM put spread, but just above your 1300 target. If your right the call spread will expire and the put spread will be ITM.

TskTsk · Jul 9, 2012

Quote from 1245:

You could sell an ATM call spread and buy an OTM put spread, but just above your 1300 target. If your right the call spread will expire and the put spread will be ITM.

But then I'd have to go below 1300 to make money...my bias is it will stay above 1300 and I'm looking to profit of that somehow...maybe you misread OP. ( Or maybe I'm misunderstanding you )

diaoptions · Jul 9, 2012

I would try a fly, I don't trade the ES but the example below is for the SPY

SPY @ $134.95
Buy 1 call contract 131
Sell 2 call contracts 134
Buy 1 call contract 137

The structure of the fly is buy one contract ITM, sell two ATM and buy one OTM.

cdcaveman · Jul 10, 2012

you see don't look at a butterfly profit graph soley at expiration.. if the market doesn't move greatly in a few days you will quickly see profit with a butterfly and you can close with a profit! its a limited risk strategy as well.. better risk reward to credit spreads sometimes.. and stick to credit spreads farther away from expiration so as to not expose yourself to to much gamma risk

hedgeman · Jul 10, 2012

Quote from TskTsk:

Say I feel the ES isnt going below 1300 this month. What would be the best trade to exploit this in terms of RR and minimizing margin (giving high return on margin)? Is a credit spread my best option?

I would and always do go with back ratio spreads. Much better if you have the portfolio margin to keep the margin very low. Good idea not to use a standard credit spread, ever. My first post and my first .02 take it for what its worth.

newwurldmn · Jul 10, 2012

1300 1295 should give you the best ret vs margin I would think.

cdcaveman · Jul 10, 2012

when is it be does it make a difference if it's at does it make a difference if it's at the money or out of the money or is it always different based upon how the options are priced

TskTsk · Jul 11, 2012

Thanks I'll look into the suggestions of this thread.

Doobs789 · Jul 12, 2012

Quote from TskTsk:

Say I feel the ES isnt going below 1300 this month. What would be the best trade to exploit this in terms of RR and minimizing margin (giving high return on margin)? Is a credit spread my best option?

Buy a 1300 strike Calendar. Vols should rise if the you're right and the ES falls there.