If I understand you correctly, your edge is just predicting an up day and nothing more, and your chosen tool is ATM debit spreads. Just keeping the position until expiry gives you chance for the highest reward, closing it (or hedging or other tinkering with it) sooner when it is profitable gives you a better winning ratio (or in other words lower risk), but -probably- lower rewards. With only the information given, personally I would like to KISS for better analyzability and lower costs.
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Question: Managing Profitable Debit Spreads
- Thread starter tommo
- Start date
That’s not a 0dte option. That’s just adding risk after your trade has earned.
Please show/explain how selling a more expensive, ATM, 10 pt spread, when you own an ITM 10 pt spread, is adding risk?
I wanna know if I'm missing something...
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Also, did you think about the situation where your edge might actually not be an edge? For example you might be able to predict up days correctly, but those days are "low quality" up days, i.e. barely up days?Im referring to debit spread so long one call and short the next call, sorry I mistyped, i meant to say, buy back the short call thats now in the money and roll it up.
As for predicting the market, i have a backtested system that predicts with around 64% accuracy if the following day is likely to be an up day, but not by how much it will positive, could be a tick, could be 500, and so by having approximately a 1:1 risk reward on a position i've built a positive expectancy.
The problem with trading outrights is the market can go down an unknown amount before returning positive on the day and playing around with stop losses breaks the binary nature of the edge I have found (does it finish up or down on the day).
Buying calls outright means it has to go up a certain amount to make money so ATM debit spreads seem the best way to express my hypothesis on the next days likely move.
I have also experimented with selling ATM puts but because I like to hold these from close to close it means I have overnight exposure when i'm unhedged, so again this brought me back to debit spreads
Please show/explain how selling a more expensive, ATM, 10 pt spread, when you own an ITM 10 pt spread, is adding risk?
I wanna know if I'm missing something...
You could have monetized your ITM put spread and gone out drinking. Instead you have a position where you could lose all that profit if you are extra right (and stock continues to sell off) or are wrong (and stock rallies back).
I think you misunderstand my post.You could have monetized your ITM put spread and gone out drinking. Instead you have a position where you could lose all that profit if you are extra right (and stock continues to sell off) or are wrong (and stock rallies back).
We are only talking about calls, PUTS were never part of the equation.. I use pt (point), 10 point spread. If I buy a 10 point debit spread with calls for 4.50, my reward would be 5.50. If i sell an ATM 10 point credit spread with calls, AFTER the price increases, for 5.00, I lock in a 0.50, credit on the whole position, and that's the worst scenario possible.
To each their own, I believe OP, wanted some ideas of, how to manage a winning position, beyond just closing it. I offered one of many, yes he could just close it and run, you have made it clear, that would be your choice.
I misread “pt” for “put.”
But the concept remains the same.
On a zero dte option there will be virtually no value on the credit part of the iron fly as the decay will be swift.
it changes the trade (as the OP alludes to). That’s fine if your view had changed; but if not, you are better to close. The call spread was not the right structure to begin with as he realized more vol than implied by the call spread.
But the concept remains the same.
On a zero dte option there will be virtually no value on the credit part of the iron fly as the decay will be swift.
it changes the trade (as the OP alludes to). That’s fine if your view had changed; but if not, you are better to close. The call spread was not the right structure to begin with as he realized more vol than implied by the call spread.
I think you misunderstand my post.
We are only talking about calls, PUTS were never part of the equation.. I use pt (point), 10 point spread. If I buy a 10 point debit spread with calls for 4.50, my reward would be 5.50. If i sell an ATM 10 point credit spread with calls, AFTER the price increases, for 5.00, I lock in a 0.50, credit on the whole position, and that's the worst scenario possible.
To each their own, I believe OP, wanted some ideas of, how to manage a winning position, beyond just closing it. I offered one of many, yes he could just close it and run, you have made it clear, that would be your choice.