Futures&options Mag Article

[PCanyon]

I recently read an article in FUTURES&OPTIONS Magazine. It's an interview with Yehuda Belsky an ex Amex Options market maker and CTA whose program is called innovativeCTA. His program is exclusively credit and debit spreads as described below from the interview. This is just a short excerpt but in the interview he presents his reasons why he likes this approach.

Is there a name for this position? Anyone have experience trading this? Opinions?


A few weeks ago, the S&P 500 June futures contract
traded at 1,510, and we sold the June 1,540/50 credit spread
(short 1,540 calls, long 1,550 calls). We also entered a debit
spread in July calls with higher strikes. By May 21, the S&P
500 rose from 1,510 to 1,534, and both spreads rose in value
(hurting the June credit spread and helping the July debit spread).
So the position was still flat (Figure 3).
We weren’t betting on the market running out of steam.
If the market rallies past 1,550, that would probably trigger
an exit, and the position would likely break even

 

[stupididiot]

Seems like aiming a gun then taking the bullet out. Where's that gonna get you?

 

[weewilly]

it could be described as a short, out-of-the-money, diagonized wingspread.

if the front vert goes out worthless, he owns the back vert at a greatly reduced cost, possibly less than free, depending on what he paid/received net for the whole thing.

 

[PCanyon]

Here's a recent review of InnovativeCTA's use of this strategy. I guess it's the only approach this CTA uses. I'd be interested in any further observations as to the positives and negatives to this type of position.

http://www.safehaven.com/showarticle.cfm?id=8032&pv=1

 

[rcanfiel]

Don't take what you read in a trading magazine too seriously. Bunch of guys trading to build so they can get a name for themselves or sell a service.

I have rarely found much of use in TASC, Futures or others. I read them, but sometimes I wonder why I do.

Most of the articles refuse to provide track records or even serious back testing/forward testing. And when they do, they cherry pick charts or instruments that put their work in the best light.

 

[windsurfer]

Thx for the link, PCanyon.

The position is described as "a calendar box, which by its very characteristics is not susceptible to volatility in the same way naked short option positions are.

The upshot is a complex position that has an extremely low margin requirement, the aim being that time decay in the front month spread will more rapidly narrow and capture premium, while the back month spread will not narrow as quickly because it has more built-in time to expiration."

An advantage is based on the volatility skew "designed to take advantage of an arbitrage between implied volatilities of various strikes in the out-of-the-money call option series."

In other words, the later month, higher strike calls of the debit spread will have a lower IV.