Bear Put Spread Question

Quote from erol:

maybe I'm thinking about this wrong, and the more experienced traders can correct me...

but after trading ITM Calls I started to like ATM Verticals, since I could be long theta if I was wrong on direction, and as time passed, my delta's would increase, instead of decrease.

I know the point of a vertical was to be long for cheap, but that leaves you with a low delta.

I basically setup my vertical to match the delta I wanted from an ITM option (roughly 70 deltas). The cost was slightly more than the ITM option, but if it went the other way, and I had to wait a few weeks, my deltas would increase without increasing my break even. And instead of having a max delta of 100, I now was long maybe 6-8 contracts, giving me a potential of 600-800 deltas if I really screwed up and had to wait.

It's a lot of money to put into a trade... but compared to owning the shares, it's a fraction of the cost, gamma and vega are relatively low, and within a certain price range, you're long theta.
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erol,
could you give some more info, what is the time frame for the trade.
 
at least 3 months
(I'll try to buy 4 month expiration, but close no matter what 1 month left)

I couldn't see this going past 5 months...

I've discovered (probably no surprise) that trading direction is hard... and for the trades I engaged in, they took at least 2 months to reach my exit criteria.
 
I learned the hard way this last week that a bear put spread is not an effective way to hedge equity swing trades.

I think it would be perfect for longer term trades, but as someone said earlier, swing trades don't give the spread enough time to widen out.

Switching over to use straight puts for protection on these two week swing trades...
 
Quote from torontoman:

My first bear put spread, so please don't tell me that I am an idiot. I already know that.

Okay, so last week I got a SPY bear put spread. 108 and 104. It costed 1.00. The market tanked. Hurray for me. SPY is at 104.3. I would love to get out at 3.7, but that stupid 104 put is at 2.57, which makes the spread worth only 2 dollars. Is there anyway I can adjust this to maximize a profit and protect it?

Thanks in advance for answering.
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You could have sold 108 and bought 105, when spread was at 2.00. You would then be left with a free trade, plus around sure 0.45 profits, and still have the chance to make another double on what is left with less money on margin.
 
Quote from riskfreetrading:

You could have sold 108 and bought 105, when spread was at 2.00. You would then be left with a free trade, plus around sure 0.45 profits, and still have the chance to make another double on what is left with less money on margin.
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Hmmmm. Interesting. Thanks for the comments.
 
Quote from erol:

maybe I'm thinking about this wrong, and the more experienced traders can correct me...

I basically setup my vertical to match the delta I wanted from an ITM option (roughly 70 deltas). The cost was slightly more than the ITM option, but if it went the other way, and I had to wait a few weeks, my deltas would increase without increasing my break even. And instead of having a max delta of 100, I now was long maybe 6-8 contracts, giving me a potential of 600-800 deltas if I really screwed up and had to wait.
More...
No one is going to be able to discern what kind of trading is best for you. They'll tell you what you should be doing but that's no more than what THEY think you should be doing.

You have to figure out the kind of moves (or lack thereof) that you're identifying and select the appropriate strategy for that.
 
Quote from erol:

I've discovered (probably no surprise) that trading direction is hard... and for the trades I engaged in, they took at least 2 months to reach my exit criteria.
More...
Maybe you should wait a month or so before taking the position? (wink)
 
Quote from spindr0:

Maybe you should wait a month or so before taking the position? (wink)
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funny, I've done that and haven't traded since :p

But seriously, after trading direction, I started to look at trading vol.

I dump less money into vol trades.

thanks for the feedback!
 
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