One week credit spreads

B

backflip

I've been looking at one week to expiration credit spreads on high priced stocks and indexes. GOOG has some good 5-7% deep OTM spreads and even 8-10% OTM condors. CME has a lot of cushion to it as well. SPX index doesnt seem as great for such a short spread. Anyone do short term credit spreads and/or condors? Any other suggestions as to the equity or index to use?

Also, what's the best stop to put in place, in case a heck breaks lose and the pps drops 30 points in a week? I've looked at a contigent order to close out the short side when the pps hits the short strike. Any better ideas?
Thanks.

PS, I'm new at this so any help would be much appreciated.:cool:
 
Start off by reading coach's SPX credit spread trader thread as a primer. The position is hedged by your long, so you know up front what your risk is. Best thing to do is position size something you are comfortable with, and then use a filter(TA, s/r whatever) as a secondary criteria to exit. You pretty much mentioned the best underlyings to do this on already. Hope this helps.
 
Quote from backflip:
I've been looking at one week to expiration credit spreads on high priced stocks and indexes. GOOG has some good 5-7% deep OTM spreads
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GOOG earnings are this week, thats why the premiums appear to be good. And I wouldn't consider 7% to be deep OTM.
Quote from backflip:
Also, what's the best stop to put in place, in case a heck breaks lose and the pps drops 30 points in a week? I
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The long position in the credit spread is your "stop" to protect you against a 30 point move. Maximum loss is difference between strikes minus credit received.

Quote from backflip:
I've looked at a contigent order to close out the short side when the pps hits the short strike.
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Might not work. During after hours the stock could easily move past the strike.
 
These are tantamount to binary bets. Premium is so small that you'll have to hold till expiration i.e. decay is not going to help you out. Risk/reward is horrendous and the probabilities do not compensate.

FWIW: If you are receiving premium for a credit spread, it pays to pause in order to consider where the premium is coming from and why someone is willing to give it to you.

Good luck!

MoMoney.

Quote from backflip:

I've been looking at one week to expiration credit spreads on high priced stocks and indexes. GOOG has some good 5-7% deep OTM spreads and even 8-10% OTM condors. CME has a lot of cushion to it as well. SPX index doesnt seem as great for such a short spread. Anyone do short term credit spreads and/or condors? Any other suggestions as to the equity or index to use?
More...
 
Wow, I started reading the 1400 pages of posts to the SPX trader. Great info. Thanks for pointing me in that direction.



Start off by reading coach's SPX credit spread trader thread as a primer. The position is hedged by your long, so you know up front what your risk is. Best thing to do is position size something you are comfortable with, and then use a filter(TA, s/r whatever) as a secondary criteria to exit. You pretty much mentioned the best underlyings to do this on already. Hope this helps. [/QUOTE]
 
What about a one week to exp Iron Condor on CME. I put on a virtual trade (very new at this stuff). Opened the JUL 430/420 put for .30 credit and 500/510 call spread for .30 credit. So I figure 6% for the IC with one week and 40 points cushion on either side (CME at 460). Good or no? Any advice is much appreciated as I am here to learn from everyone's wisdom.
 
Quote from backflip:

So I figure 6% for the IC with one week and 40 points cushion on either side (CME at 460). Good or no? Any advice is much appreciated as I am here to learn from everyone's wisdom.
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Not sure if my earlier post made much sense or not. I can only reiterate that expiration week iron condors of this nature are not advised in general.

Do enough of them and you will eat like a chicken... but when it's time to go to the toilet you will shit like an elephant!

What are you risking to make your 6%? What are the probabilities of making that 6% (using implied vols)? If it is less than 94% then if you take that bet enough times do you think you will be a net winner or net loser?

These are some basics to think about before moving on to: peaking gamma in expiration week, slippage, commissions, cab implications etc.

Good luck.

MoMoney
 
I thought about this today as the rally took off with only 2 days left til expiration. What would look like an easy way to pick up 20/30 cents on a position would have turned nasty. I traded alot of weekly xsp's the past few months and had about 6 or 7 weeks of straight profits but one bad move last week gave back a good portion of those profits. It definately made me rethink the strategy.
 
So it seems that a spread with so little time to exp has no room for error, whereas with one 30 days out, there is time for adjustments, or closing out early before exp week?


Quote from Russ32:

I thought about this today as the rally took off with only 2 days left til expiration. What would look like an easy way to pick up 20/30 cents on a position would have turned nasty. I traded alot of weekly xsp's the past few months and had about 6 or 7 weeks of straight profits but one bad move last week gave back a good portion of those profits. It definately made me rethink the strategy.
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