Best options for an S&P play?

[lindq]

Looking for experienced opinions.

I haven't traded options related to S&P products in a long time. But I have a solid strategy that will put me long on a Friday and exiting on a Monday afternoon, and I want to limit my downside risk. Thus, long calls seem to be the best way to go.

So, thinking about calls, I'm looking for the cleanest play possible, meaning tightest spreads and closest tracking to an instrument related to the S&P.

Calls on SPY appear to be a pretty good bet.

But I am open and appreciative of any other good ideas. Thanks.

 

[beerntrading]

You'll pay for relatively high volatility to hold over the weekend. Spreads that mitigate that loss will both be sensitive to price movements. Why not flip to the other side and play put (or call) credit spreads. Keep the volatility decline in your favor while also getting relative price sensitivity. i.e. if you expect a 2 point move to close today, look how you would have done shorting 2470 put and going long 2460. You'd have a tough time duplicating that return on a call...

What type of move are you looking to pick up on the SPX?

 

[lindq]

You'll pay for relatively high volatility to hold over the weekend. Spreads that mitigate that loss will both be sensitive to price movements. Why not flip to the other side and play put (or call) credit spreads. Keep the volatility decline in your favor while also getting relative price sensitivity. i.e. if you expect a 2 point move to close today, look how you would have done shorting 2470 put and going long 2460. You'd have a tough time duplicating that return on a call...

What type of move are you looking to pick up on the SPX?

I tend toward extreme simplicity in my trading, and because this particular trade has a very strong positive expectancy, a straight call may be the best bet. But you brought up a good alternative that I'll research further.

Regarding a type of move, the trade is actually triggered by a volatility system asking to short VOL, but VIX related options are just too funky, and I have learned not to trust them. Thus my search for an efficient long market vehicle with some downside protection. With a long call I am ready to give up the premium for a shot at the upside.

 

[beerntrading]

I tend toward extreme simplicity in my trading, and because this particular trade has a very strong positive expectancy, a straight call may be the best bet. But you brought up a good alternative that I'll research further.

Regarding a type of move, the trade is actually triggered by a volatility system asking to short VOL, but VIX related options are just too funky, and I have learned not to trust them. Thus my search for an efficient long market vehicle with some downside protection. With a long call I am ready to give up the premium for a shot at the upside.

What's your percentage accuracy, and how bad are the moves against you when you're wrong? (Only rhetorical...the specifics aren't that relevant).

A high percentage accuracy (north of 2/3), coupled with a small move against you would favor a debit spread--especially if you're looking for declining volume. This will work better on the bullish side than the bearish (a move down in S&P is likely to correspond to an increase in volatility).

If you're a bit more aggressive, look at what the 2470-2465 put credit spread would have done for you. You'd cut your potential losses to 10:3 while increasing price exposure.

There's an inherent flaw to trying to play ordinary price moves purely on long options, and particularly when you have a high volatility event over your time frame (the weekend), unless you're trying to hit the Big One. The flip side to that flaw is the value in credit spreads.

The statistical likelihood of the ordinary weekend move is already priced into long options, as is the (very small) likelihood of the Big One. So you'll pay for the Big One that doesn't materialize in addition to the ordinary move volatility (and all the advantages of your model will disappear in lost extrinsic value). You'll do better over the long run collecting premium while your model shields you from the ordinary move, and your spread shields you from the worst the Big One has to offer....then the only question is making sure the little moves in your favor generate enough premium to offset the Big One against you.

 

[lindq]

What's your percentage accuracy, and how bad are the moves against you when you're wrong? (Only rhetorical...the specifics aren't that relevant).

A high percentage accuracy (north of 2/3), coupled with a small move against you would favor a debit spread--especially if you're looking for declining volume. This will work better on the bullish side than the bearish (a move down in S&P is likely to correspond to an increase in volatility).

If you're a bit more aggressive, look at what the 2470-2465 put credit spread would have done for you. You'd cut your potential losses to 10:3 while increasing price exposure.

There's an inherent flaw to trying to play ordinary price moves purely on long options, and particularly when you have a high volatility event over your time frame (the weekend), unless you're trying to hit the Big One. The flip side to that flaw is the value in credit spreads.

The statistical likelihood of the ordinary weekend move is already priced into long options, as is the (very small) likelihood of the Big One. So you'll pay for the Big One that doesn't materialize in addition to the ordinary move volatility (and all the advantages of your model will disappear in lost extrinsic value). You'll do better over the long run collecting premium while your model shields you from the ordinary move, and your spread shields you from the worst the Big One has to offer....then the only question is making sure the little moves in your favor generate enough premium to offset the Big One against you.

Your points are well presented. Thanks.

 

[traderlux]

it sounds like you are doing what we call a fri/mon trade, take a look at my journal I think I have some trades in there, I have had good trades with AAPL, also have done some thu/fri trades....start at the back of my journal if you look there....