Initiating Credit Spreads

aphexcoil

aphexcoil

I am curious how others initiate a credit spread. Do you begin with the debit part first and then proceed to open the credit portion? I am going to use IB and I'm not sure how they will calculate margin requirements if I open a naked portion first.

Also, do you hit the ask or bid or sit on both portions until filled? Options are supposedly first come, first serve.

Would it be more advantageous to open an OEX credit spread or options on ES?
 
In all honesty, you are not going to be qualified by IB to open the credit side first or trade one wing "naked"...Maybe, if you are trading 10 strikes OTM you could do this, but I still doubt it...Since the Crash of 1987, margins on the OEX have been enormous...If you have an account with them already, you can right click the mouse when you select a trade and it will compute the margin required...
 
Since I never leg in from the naked side, I open the spread by ordering both legs at the same time and the amount of credit I want. That way it fills at essentially the same time. I use OptionsXpress to trade and they have the spread features built into the trading screen.
 
I ALWAYS open the long side first. I even have my brokerage account set to reject naked orders. When making a lot of trades I don't want to forget or screw up and leave something naked. The number 1 through number 100 rule in trading is always money management. :)
 
Originally posted by aphexcoil
I am curious how others initiate a credit spread. Do you begin with the debit part first and then proceed to open the credit portion? I am going to use IB and I'm not sure how they will calculate margin requirements if I open a naked portion first.

Also, do you hit the ask or bid or sit on both portions until filled? Options are supposedly first come, first serve.

Would it be more advantageous to open an OEX credit spread or options on ES?
More...

Pick off the weak leg ...
 
Originally posted by aphexcoil
IWould it be more advantageous to open an OEX credit spread or options on ES?
More...

For all practical purposes, options on ES don't really exist. Roach motel.
 
Originally posted by Pabst


That's what it's all about, eh.
More...

Leg them;

Long or short first doesn't matter;

The weak one first is the most important;

If you miss that leg;

Then you don't care ...
 
Another point I wanted to make about "credit spreads"...I used to trade these things when I first got started in options...FIrst of all, if you are going to trade the OEX, SPX, etc, etc with these spreads, you can really only do these on the call side due to the vol skew...On the put side, you are selling cheaper IV and purchasing more expensive IV, so you are not going to see any real widening of the spread until the final few days of an expiration cycle...In the interim, you will find yourself sitting on a dead spread that locks in a small profit and exposes you to any number of outlier events...

Personally, I think there are better strategies...I also think it is preferable to leg spreads as often as you can...Use scales, do whatever you can to increase your edge...If you trade into a credit spread simultaneously with the bid-offer spread as wide as it is, you are giving up alot in return for a little...
 
Aphie,

there is only one way to initiate a credit spread. Put in the order on one ticket as a net credit.

As someone else mentioned, margin req's on credit spreads are higher. Usually need 25k minimum in account
 
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