Is Credit Spread really profitable?

Jerkstore said:
Expected value of random risk is zero minus costs.

Good thing I don't sell it randomly, but rather into favorable market conditions.
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I see. Although, given the assumption that you can establish that favorable market conditions exist, selling strangles sounds like an even better option (at that kind of wing widths, you're pretty close to it anyway.)

Jerkstore said:
Amazing how consistent the condor value is to the straddle.

This sounds a bit skewed though. What expiration you looking at?
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20 Sep 19. IV skew is 14.96%/21.74% for the short strangle, so doesn't seem too unusual.
 
Jerkstore said:
On any given day I typically only run 6 algos. Why? Because my job is to determine market environment, then to match the proper strategies to that market environment. We do this every day, and paper trade the algos that we aren't live trading. *My most important job as a risk manager is to know what risk will work today. No algo works in every environment.*"
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Totally agree ... In a way you become a discretionary trader of your automated strategies. Also, very good point about running and monitoring all the strategies daily even on paper to detect when conditions change. Lots of great insight here, imho.
 
qlai said:
You are referring to retail traders, right? I thought that professional premium sellers are part of the largest institutions and are very sophisticated. Or is there no such thing as professional desks dedicated exclusively to premium selling?
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It has nothing to do with sophistication.. These institutions have a quota and need to meet it. The entire industry is short vol.. its the biggest complex in the market. Why do you think this market has been so bullish with low vol? Short vol is implicit long equity. Its the same pay-out structure and its how these firms invest their money. And no these desks are not "exclusively" sellers of premo, I don't even think that's possible, its all balanced and hedged proportionately.

As far as us retail guys, theres nothing wrong with credit spreads. Its just another strategy you can use to utilize specific conditions. I use them all the time, vertical spreads were the foundation to my trading years ago and they taught me so much about optionality and how to morph positions.
 
Philo Judeaus said:
And no these desks are not "exclusively" sellers of premo,
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Short vol funds like LJM are exclusively short vol. I evaluated a few funds who never buy an option unless forced to. Neither will they trade other product classes. Just short wide strangles, often weeklies.

One of the firms I looked at had maxed out their size w the cme group selling hundreds of thousands of emini spx weekly strangles, naked. These guys were actually quite good at knowing when to flatten or not trade though, and dodged major losses last few years.
 
Philo Judeaus said:
The entire industry is short vol.. its the biggest complex in the market.
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So who's on the other side of the trade - mostly long equity funds? I would assume they don't constantly hedge their portfolios as it would be too expensive.
 
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