Debit and Credit Spreads - Can it be done successfully?

W

WebTrader

Greetings Elite Traders!

I am starting this thread because I am trying to integrate options spreads into my trading system. I already started a journal thread that will cover my trading results (all asset classes). However, I want to discuss with the options traders here strategies that can sharpen the "edge" and translate into consistency.

I have graduated from paper trading my options strategies into trading them for real money (small contracts). My goal in doing so is to see how easy/hard it is to get filled at mid quote, etc. If I can consistently show a profit I will eventually grow the positions to $1500- $2500 in risk and have as many as 8-14 open positions per expiration.

Please review my closed and open positions and ask/recommend as you wish.

Thanks!
 
IMO ........ Long calls or puts are better than debit spreads.

Selling the call or put at first glance appears to be a good idea to lower the cost of the position, if the underlining doesn't move in your direction then all is good. BUT if the underlining does move in your direction the short option can be a drag on your profit.

Solution: How much do you plan on spending for the debit spread? Take that figure and buy the equivalent option, it will probably be only 1 strike further OTM than the long option of a debit spread. You get to keep the entire gain if the underlining has a good move, no short options to deal with.
 
I like this idea, I remember hearing debit spreads and credit spreads referred to as "cheap (debit) and chicken (credit)". I know one guru who had a debit spread service and after a while decided he got better results just doing the long positions and not capping off with the shorts.

FXforex said:
IMO ........ Long calls or puts are better than debit spreads.

Selling the call or put at first glance appears to be a good idea to lower the cost of the position, if the underlining doesn't move in your direction then all is good. BUT if the underlining does move in your direction the short option can be a drag on your profit.

Solution: How much do you plan on spending for the debit spread? Take that figure and buy the equivalent option, it will probably be only 1 strike further OTM than the long option of a debit spread. You get to keep the entire gain if the underlining has a good move, no short options to deal with.
More...
 
wouldnt credit spreads be statistically better than debit positions by being more safe and consistent?

for example, if you use pure probabilities to develop an assumption,

at 1STD you generally have 84% chance of success and 16% chance of loss.

so if you cap your losses at 50 dollar spreads, and can collect at least $10 in credit, over time you'll still be up (840 - 640 = +200.)

debit spreads, you need to have a 40w/60L and have a max win that is 1.55x your debit statistically come out on top by a marginal amount.

ex: current TZA trade,

tza at 13.60, 1std move 1.8
sell 1x nov 28 14.00 call at 0.25std
buy 1x nov 28 13.50 call 1 strike below upper
if taking mids of bid and ask, the debit is $15. max is $35.

statisically, in 100 trades
payout for this is 500 (1400-900).
 
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