I'll copy this over from SPX credit spread trader.
Another week. I made $1000 gross on a Wednesday spread and $850 net.
I've had two weeks to review weekly OEX credit spread trading. There was an interesting comment from a newbie talking about a 200 point out-the-money credit spread workiing for two years for somebody on the NDX.
I more or less compared that to the OEX and it is roughly 10 to 1 in points. In other words, if you put a 4 strike, or 20 point Vertical Bear Call Credit Spread away from the opening on a Monday for the OEX weekly. Your probabilities of success over the past 12 weeks were 93% winning. If you could put on the spread 25 points or 5 strikes away from the Open on Monday, your winning is probably 100% for a year.
The fly in the ointment is; there are no premiums so far away. Premiums are usually only 2 strikes, or so away from the action. Early in the week you might get a premium at 3 strikes away. It is not far enough away though and you must move in my NEW RULE until the index moves 1 strike toward your target, so your actual spread is 4 strikes out from the OPEN on Monday. You need an early morning or late afternoon sudden move to balloon premiums then you can get the spread on. So this week past starting on Monday I waited for the OEX to move enough to get on a spread. It did not do so, but I did by three days later, on late Wednesday succeed getting .20 cents in a spread four points out from the open on the Monday. By that time the OEX had moved 1 strike and a couple of index points closer to the 20 point, or 25 point out-the-money goal, above the market. It worked out and I made my money, with a 50 contract spread. Or $25,000 at risk and a 3% reward on margin. I failed to make the trades for Thursday, though if I had, the trade would have been a successful IRON CONDOR. I fell asleep in the hammock, waiting for my buying time on Thursday morning and it passed me by and I missed the opportunity. Option time decay kicks in around 11:45 a.m. on Thursday. You have to beat the premium changing.
I've gone over the adjustments and it is just not possible really to adjust much of anything in credit spread trading is my conclusion. You can CLOSE the spread before you get hit on the short, which will not lose the $25,000 but will still lose probably half of it. Other than that, there does not seem to be any adjustments you can make to save a LOSS if it occurs. The Thursday Friday Iron Condor is a good one because TIME DECAY is so big, that you should be able to CLOSE if necessary with a .10 cents, or 15 cent loss. Still huge on a 50 contract spread. The profit though is like 1 % for the risk.
I've come to the conclusion you have to gamble, ALL or NOTHING. I am trying to LEG into the spread, to get my 25 points preferably and 20 points if not, out-the-money. Or the 200 points in the NDX At 93% probability of succeeding that is not such bad odds, most of the time.
On the down side, in a bear plunge if you tried to do an IRON CONDOR with a Vertical BULL PUT credit spread, your odds of winning are only 66%. Call it in round numbers a 50 - 50 bet. Not very good odds.
A lot depends on the volatility of the market. So a check on Monday of the VIX and the ATR would be in order, to know if you should even bother putting on a Vertical Bull Put Credit Spread as that is were the danger is. In a narrow ATR and a low VIX number, it is entirely worthwhile and your odds go up. Otherwise with a large ATR, or high VIX around 25 or higher, stay out of it.
Those are my research conclusions and will be trading this way for the forseeable future as far as credit spreads go.
Now I have to find a futures broker and see how to trade the E mini. I like the sound of it so far, reading.
Another week. I made $1000 gross on a Wednesday spread and $850 net.
I've had two weeks to review weekly OEX credit spread trading. There was an interesting comment from a newbie talking about a 200 point out-the-money credit spread workiing for two years for somebody on the NDX.
I more or less compared that to the OEX and it is roughly 10 to 1 in points. In other words, if you put a 4 strike, or 20 point Vertical Bear Call Credit Spread away from the opening on a Monday for the OEX weekly. Your probabilities of success over the past 12 weeks were 93% winning. If you could put on the spread 25 points or 5 strikes away from the Open on Monday, your winning is probably 100% for a year.
The fly in the ointment is; there are no premiums so far away. Premiums are usually only 2 strikes, or so away from the action. Early in the week you might get a premium at 3 strikes away. It is not far enough away though and you must move in my NEW RULE until the index moves 1 strike toward your target, so your actual spread is 4 strikes out from the OPEN on Monday. You need an early morning or late afternoon sudden move to balloon premiums then you can get the spread on. So this week past starting on Monday I waited for the OEX to move enough to get on a spread. It did not do so, but I did by three days later, on late Wednesday succeed getting .20 cents in a spread four points out from the open on the Monday. By that time the OEX had moved 1 strike and a couple of index points closer to the 20 point, or 25 point out-the-money goal, above the market. It worked out and I made my money, with a 50 contract spread. Or $25,000 at risk and a 3% reward on margin. I failed to make the trades for Thursday, though if I had, the trade would have been a successful IRON CONDOR. I fell asleep in the hammock, waiting for my buying time on Thursday morning and it passed me by and I missed the opportunity. Option time decay kicks in around 11:45 a.m. on Thursday. You have to beat the premium changing.
I've gone over the adjustments and it is just not possible really to adjust much of anything in credit spread trading is my conclusion. You can CLOSE the spread before you get hit on the short, which will not lose the $25,000 but will still lose probably half of it. Other than that, there does not seem to be any adjustments you can make to save a LOSS if it occurs. The Thursday Friday Iron Condor is a good one because TIME DECAY is so big, that you should be able to CLOSE if necessary with a .10 cents, or 15 cent loss. Still huge on a 50 contract spread. The profit though is like 1 % for the risk.
I've come to the conclusion you have to gamble, ALL or NOTHING. I am trying to LEG into the spread, to get my 25 points preferably and 20 points if not, out-the-money. Or the 200 points in the NDX At 93% probability of succeeding that is not such bad odds, most of the time.
On the down side, in a bear plunge if you tried to do an IRON CONDOR with a Vertical BULL PUT credit spread, your odds of winning are only 66%. Call it in round numbers a 50 - 50 bet. Not very good odds.
A lot depends on the volatility of the market. So a check on Monday of the VIX and the ATR would be in order, to know if you should even bother putting on a Vertical Bull Put Credit Spread as that is were the danger is. In a narrow ATR and a low VIX number, it is entirely worthwhile and your odds go up. Otherwise with a large ATR, or high VIX around 25 or higher, stay out of it.
Those are my research conclusions and will be trading this way for the forseeable future as far as credit spreads go.
Now I have to find a futures broker and see how to trade the E mini. I like the sound of it so far, reading.