I've spent about 4 months learning the nuances of credit speads. I'm disappointed in the result. I'm down about $6000. Fortunately this is paper money on Thinkorswim. Only one actual loss in the credit spreads in around 13 weeks. But what I've learned in CREDIT SPREADS, you cannot even take ONE LOSS. It is a no loss type strategy.
My goal is $100,000 a year. Nor do credit spreads seem to be able to do that?
Phil on SPX trader is gambling in margin, about a $100,000 a time, but making around 3% which is just $3000 a trade, which roughly translates into say ten successful months x $3000 = $30,000. No where near my goal and one LOSS would wipe out your margin, which is much greater.
Not to say, given correct market conditions, you couldn't add a credit spread that seemed to be a sure thing once in a while. But tying up your capital for a month seems self defeating? Bear Market plunges work good for credit spreads on pull backs. I've come to the conclusion I'm wasting my time with credit spreads. Most people are only going to make about $12,000 a year, to $25,000 a year if they are lucky. The returns are just not there!
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CACHE LANDING on the SPX credit spread trader forum had some good advice and said to go to E Minis. Took a brief look at them yesterday. Will look some more. They are S&P Futures it says, but the E Mini is a 1/5 th contract. Meaning about $50 a point of movement. The E Mini and the S&P track the OEX and you can use the OEX to trade the S&P. I'm not too keen on open ended FUTURES trading, but will look at their options if they have them.
Interestingly enough the EMINI is a wilder swing than the OEX but otherwise tracks it. The E MINI seems to lead the OEX too, which might be useful to know, but I wouldn't know at this point how to use that knowledge? The margin runs $2500 to $4500.
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I did start studying the GREEKS, though I'm more used to tracking prices and index bar movement as in technical chart reading. I cannot relate the greeks to anything useful for trading a CREDIT SPREAD so far. There was a mention on GAMMA TRADING and did some searching for that. Didn't find much!
What I did find said that GAMMA trading is basically trading DELTA NEUTRAL. It seemed to be doing LONG OPTIONS? When you go UP, you sell some of the options you are holding to bring your DELTA back to neutral. If the market goes down, you buy more options to add delta and bring it back to neutral. Long options have TIME DECAY eating you up, so I expect 2nd month options would be traded. Right now that takes about 8 pts in the OEX to break even and make a bit. Almost impossible to get such moves these days, though once long ago you could. It does say DELTA or GAMMA trading is to do with fast movements in changing IMPLIED VOLATility. I'm familiar with that idea, but I call it premium ballooning. When the index is moving in one direction fairly steady, you jump in and get out before it slows and stops basically. Premium ballooning depends on one directional speed of changing index values.The advice on the GAMMA DELTA trading is to hedge, or adjust the DELTA by buying or selling often when the index is moving. If you have a steady one directional move, then you do not do anything to your bet, or less often.
Can't seem to figure out how to use that idea in the OEX. The index doesn't move that much. Though there are trends about once every six weeks. I'd guess if you worked a trend for the 12 or 14 days that it runs, this could work using ATM options. I'm wondering about DEBIT SPREADS? Maybe that would work this way? Have no experience with DEBIT SPREADS yet. But they are directional plays on a trend, is my understanding?
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