OEX weekly options

Trading Journal and Stanford

I'm in trouble mentally. I've been doing so many experimental Debit and Credit spreads I no longer understand what I'm seeing in the premiums. Tell me did I lose or gain on this one?

CREDIT Spread October OEX

Experiment: Wanted to see how easy it would be to get .40 cents profit.

In theory anyway: I did 50 - 515/510 Oct. OEX and sold at $9.00 and Buy the 510 at $7.50
I just closed the credit spread at: buy the 515 at $4.70 and Sold the 510 at $2.05.

I show a $2.75 difference over the original CREDIT I got which was $1.50 I believe.

What the heck happened here. I can no longer think straight?
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For comparison sake I also did one on the WEEKLY OEX

50 contracts 515/510 originally had a $$1.30 credit I believe I sold the 515 for + $3.50 and bought the 510 for - $2.20

Lets see I bought back the 515 for $10.30 and sold the 510 for $7.60 for WHAT? I've got $2.70 but not sure if I lost it or made it? My brain will no longer work on these darned things.
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Trading Journal

I see that you recommended a spread in the debit spread of 3 strikes, or 15 OEX points to give the CALL more room to gain. Hmmnnnnn! I hadn't thought of that. As I understand the DEBIT SPREAD, the sold side is INSURANCE, to enable one to avoid suffering TIME DECAY while waiting for a directional move. I had it in mind that I had to CLOSE the DEBIT SPREAD when the short side went through ITM, in order not to be assigned. Your way sounds more promising, but won't know until I try it. I actually have the bought side on a new DEBIT SPREAD this morning and trying to get in the SELL side a lot cheaper than what I did before. I was waiting for the market to go up a bit to narrow the debit spread before placing it. As the standard spread for a one strike spacing is not cheap enough to make any money.
 
Falconview you wrote

"In theory anyway: I did 50 - 515/510 Oct. OEX and sold at $9.00 and Buy the 510 at $7.50
I just closed the credit spread at: buy the 515 at $4.70 and Sold the 510 at $2.05."

So it seems to me you got 1.50 credit, then it cost you 2.65 to close the spread. That seems like you actually ended up net losing 1.15. If those are the correct figures you gave us.

In the second example

"50 contracts 515/510 originally had a $$1.30 credit I believe I sold the 515 for + $3.50 and bought the 510 for - $2.20

Lets see I bought back the 515 for $10.30 and sold the 510 for $7.60 for WHAT? I've got $2.70 but not sure if I lost it or made it? My brain will no longer work on these darned things."

So you got a credit of 1.30, then it cost you (7.60-10.30) 2.70 so looks to me like a net loss of 1.40. Not something you want to keep doing!
That is why you and I need to stick to the paper money for a long time until we can wrap out pea brains around this.
I know how sometimes I can get turned around also.

Michael
 
Trading Journal

Okay I just completed the BULL CALL DEBIT spread.

This morning I bought the OEX October 520 at $7.40

The assumptions I had made to experiment with, was that since the regular spread always lands over $3.25 as a spread, and loses no matter what I seem to do. That if I narrowed the spread I might make it work? As the spread seems to wander between $2.20 and $3.00. The theory says it should widen with market movement to $5. Recommended in what I've read is to sell over $4. However at no time so far, have I been able to accomplish such widening. The most I've got is $3 widening.

So I just completed the BULL CALL CREDIT SPREAD because the jump in market movement increased the value of the OEX Oct 525 My thinking was a couple of points of market movement in my direction would give me during the SAME DAY, a better price on the SELL side.

The difference now is just $1.90 for the spread and if it moves to $2.60 or so will close it out.
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I'm assuming now that if I get 3 or 4 OEX points UP move, I will be able to close out this spread for a profit, albeit with double commissions. I wanted a short time period debit spread trade, so I could repeat them more often. What will happen tomorrow I don't know, but I'm figure on an up daily bar. It doesn't matter if it doesn't happen right away, because now I'm insured against TIME DECAY effects and my spread is a straight directional play. I can wait a few days.
 
Stanford

I nearly succumbed to greed this midday. I wanted to collect .70 cents premium using the 500 or 505 strike. 2% deviation. While I believe it would be okay, finally decided to wait another day and let the dust settle on the market action. I believe we have a pause, or consolidation day today. But up tomorrow is my guess.

So will wait until late Wed afternoon, or Thursday morning and see what the indicators say about this trend. Don't want any expensive surprises come Friday expiration on the weeklies. I'm still digging my way out of the hole in the TOS account from that Credit Spread that cost me $20,000.
 
Quote from falconview:


Trading Journal

...As I understand the DEBIT SPREAD, the sold side is INSURANCE, to enable one to avoid suffering TIME DECAY while waiting for a directional move. I had it in mind that I had to CLOSE the DEBIT SPREAD when the short side went through ITM, in order not to be assigned..
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This represents clear and good understanding. I would try to avoid information overload. If the short side is candidate for assignment it means you long side is way deep ITM. So it would mean that you need to roll both up if you think the move is still going up, and want to play it.

Maybe this analogy would help: you are climbing a ladder. Step where your feet are is where were your long strike is. Short is where the hands are. The stock is roughly in front of the middle of your body. While the stock climbs, in order to keep pace with it, you move your feet, and your hands upward. That is similar to rolling the calls in the debit spread. But make sure the ladder is heading higher...:)
 
Quote from tradingjournals:



5. Stanford: My prediction for NDX: sellers expected to appear before 2013. Using a 1.5% band (which is roughly a daily range), sellers would start appearing between 1982 and 2013 on this bull leg.
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Falconview: what are your models saying? Yesterday the market had trouble moving up in the band forecast yesterday. Yesterday's top was right at the middle of the band mentioned above.

Stanford: If such forecast is correct, how could it help you?
 
Trading Journal

I figure we are at least 2 or 3 days away from a TOP. Maybe more days than that. The market is drifting right now. A little down move will not scare me out of anything.

I have 3 EXPERIMENTAL DEBIT SPREADS ON NOW THIS MORNING ON SCRATCH PAPER WORKSHEET.

1) 1 strike out the money and one strike apart in the legs. This one I legged into, and got a spread down below $2.
2) 1 strike out the money and 3 strikes apart ( your suggestion and I liked it.
3) Half a point ITM for the index, so I have 1 strike ITM and 3 strikes apart. That little bit in the money, sure jumped the premium though.

For comparison sakes will see how it works out.
 
Falconview:

Could you write out the strikes as it is hard to follow with the words.

If you get the direction wrong, the one with the deepest ITM leg would hurt the most.

I am actually surprised by your prediction. Everything is possible in the market, but I noticed the sharp reversal at around 9:48AM. Did you see that?

I currently think that the bears have ordered today some rib and sirloin steak from the bulls. You are paper trading so it does not matter.
 
I currently think that the bears have ordered today some rib and sirloin steak from the bulls. You are paper trading so it does not matter.

-Ha! Ha! Ha! Touche!-

Well I can't predict intra-day stuff. I work more on the daily trend. Yes the intra-day did give a top signal. But is not sustained by another indicator I use. I can't trust what the indicator based on intra- day movements say. the TIME FRAME is too quick and short. To me, if you are getting a signal it is a FALSE ONE. But as you say, you are trading with real money.
There is usually a divergence at the top and I don't have that yet. I'm looking for another little rally in there. The divergence would take at least two days to fill.

Going back to 20 to 30 years or more back stock trading. This is a FALL accumulation for institutions buying up cheap bargains for the JANUARY EFFECT. You can earn 20 to 30% in stocks during most January periods. Institutions have to complete their buying up by end of November due to the 30 day rule. Plus they dump all their DOGS, to clean the books for the annual report. If you are a stock trader only trading in ONE DIRECTION, then one trade alone, during January is the name of the game. You will do more in that month than in the rest of the year.
I moved into options because you do not have to trade quarterly or seasonally, or only in trends. In options you can trade the waves and go both up and down, without worrying about an uptick rule.
 
Okay here are my three debit spread experiments.

1) Placed with the OEX at 515.63
Oct 520 buy at $7.40, legged into and sold the OCT 525 at $5.50, for a spread of -$1.90

2) Oct 520 buy at $7.00 and sold the Oct 535 @ - $1.65 Spread is - $5.35

3) Oct 515 ITM bought at $9.90 and sold the OCT 530 OTM at $2.70 for a spread of - $7.20
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Number one trade I'm sure I'll make some money. I legged into it and got a good spread. I believe the extra cost of legging into it through the day, will be more than covered by the profit on 5 contract trades. I can exit as a spread though.

Number two and three trades are just a standard BUY and SELL at whatever it was at the time for premium. I am counting on the effect of the bought option going through the ATM into ITM to gain, based on the 10% volatility in that action, then the higher DELTA and money accumulation that goes with an ITM trade, whereas the OTM only increases about 60% in premium at the same time. ( .35 cents a point ) The ITM leg of the two last trades should work to my benefit.
What I'm thinking of now, in hindsight; is that probably in the future I would if this works out okay? Probably combine both your 3 strike out spread system and the legging into a better premium on the sold side of the spread. Waiting for a favorable 2 OEX point move to narrow the spread. A double whammy! Yet to be tried in practice though.
 
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