Credit Spreads Strategy

[countdrak]

I have been playing with small option positions for the past 12-15 months and have realized that I am just not good at predicting directions on where a stock is going . Last few months I have been using Iron condors on SPY and collecting some decent credit (again very small positions every week).

My question - Why don't most people use credit spreads and just trade a range for stocks/indexes that have a tight range AFTER earnings? Maybe use 1STD or even 2STD away? I am missing something obvious - so want people to poke holes in my strategy. Is it because the gains are small for higher risks?

Thanks!

 

[OptionGuru]

Credit Spreads and Volatility don't mix. And the market is very volatile, including after earnings.

 

[AlphaRocks]

Last few months I have been using Iron condors on SPY and collecting some decent credit (again very small positions every week).

Sideways markets, like last year, are good for market neutral strategies... if you found something that works, stay the course and keep doing it; just be ready for when the market conditions go against you and adjust your strategy.

My question - Why don't most people use credit spreads and just trade a range for stocks/indexes that have a tight range AFTER earnings? Maybe use 1STD or even 2STD away? I am missing something obvious - so want people to poke holes in my strategy. Is it because the gains are small for higher risks?
Thanks!

It's also about vol, you want to sell when is high an buy when is low. Selling low vol credit spreads may not be worth the risk. And, if the security has a very tight range, there's probably not going to be much premium to collect, or lack liquidity, on the front contract. At 2std you could potentially be risking .95 for every .05 that you collect, so a single loss could set you back 19 winners. Now, having said that, credit spreads and condors are good market neutral strategies.

 

[countdrak]

Credit Spreads and Volatility don't mix. And the market is very volatile, including after earnings.

Thanks! I think you misunderstood.. That was my point. I am doing credit spreads because volatility is high on the index etfs..and was wondering if it a good strategy to pocket some $$.

 

[OptionGuru]

Thanks! I think you misunderstood.. That was my point. I am doing credit spreads because volatility is high on the index etfs..and was wondering if it a good strategy to pocket some $$.

IMO ......... Credit Spreads offer very little value in low and high volatility. Buying options is the way to go.

 

[ironchef]

IMO ......... Credit Spreads offer very little value in low and high volatility. Buying options is the way to go.

I thought most here would say selling put is the way to go since puts are usually expensive?

 

[Windlesham1]

This is not the place for sensible comment evidently- we each have to find what works for us-and THAT is the big secret

 

[Mestengo Hidalgo]

Credit Spreads and Volatility don't mix. And the market is very volatile, including after earnings.

Are you serious with this reply? Credit spreads are all about taking advantage of volatility. Selling call spreads during the August correction nearly double my already satisfactory return for 2015.

 

[OptionGuru]

Credit Spreads and Volatility don't mix. And the market is very volatile, including after earnings.

Are you serious with this reply? Credit spreads are all about taking advantage of volatility. Selling call spreads during the August correction nearly double my already satisfactory return for 2015.

Perhaps you could post how to take advantage of volatility with credit spreads in this thread: LinkedIn Iron Condor Gone bad. I'm sure the OP could use some of your advice, he didn't do to well with High Volatility and Credit Spreads.

 

[Mestengo Hidalgo]

Perhaps you could post how to take advantage of volatility with credit spreads in this thread: LinkedIn Iron Condor Gone bad. I'm sure the OP could use some of your advice, he didn't do to well with High Volatility and Credit Spreads.

Because an Iron Condor is made up of two opposing credit spreads a trader needs to look at this strategy very differently. I rarely use an Iron Condor when VIX volatility is over 18%. Credit Spreads and high volatility, both IV & IV Rank, are like peanut butter and jam. They are a natural. High volatility usually indicates there is a underlying price change happening or coming, most often to the downside. How can anyone not see the opportunity to sell call spreads above the expected move? The only time I use an IC in a high volatility environment is when the premium is high enough that I can go out to 10-15 delta short strikes and make at least 25% ROC at 50% max profit. If I do place that trade, I back it up with a 3 x credit received stop-loss on the put credit spread only.