SPX Credit Spread Trader

A fill at $0.35 is about $19,500 net credit after commish.

I would take $4,500 of that amount and purchase either OTM OCT VIX Calls with a strike near 17 or so (VIX options now have 1.00 increments) or bull call spreads using lower strikes to have a partial hedge against some shapr drops.

Other choice is to buy 150 SPY 123 Puts at .30.

As for selling futures, I would not look into selling unless we broke below 1250 (arbitrary line in the sand).

Basically evne with a normal crappy OCT, I do not think we will push past 1250.

Quote from riskarb:

Would you sell futs into the exposure? IOW, would you hedge immediately? If so, what vehicle?
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Actually I do 5, 10 and 15 point spreads with no specific preference for one over the other. Just depends on what credits I am seeing and the spreads and what I am in the mood for.

When it is n/a it just means that due to the wide SPX spreads the bid to sell the spread is a net debit. However I still calculate the midpoint and work off of that.

Quote from virawan:

Coach,

normally you are using 15 point interval, why now is 5?
And then I saw the chains the bid ask is n/a 1.00, can we can filled on the n/a 1.00 bid ask?

And then I try to open a 5 contracts order, but it seems so difficult, is it because to small contract?
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DOubt I will get a fille today on SPX but do not feel like raising my strikes. I may look at what premium I can get now with the 10 pointer and the spreads available.
 
Quote from optioncoach:

Have an open order to get filled on OCT SPX 1225/1230 at $0.35 limit but no bites as of yet...
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phil, why today vs 3 days ago when we hit 1290. And dont say you dont care about entries.
 
Quote from optioncoach:

I would take $4,500 of that amount and purchase either OTM OCT VIX Calls with a strike near 17 or so (VIX options now have 1.00 increments) or bull call spreads using lower strikes to have a partial hedge against some shapr drops.
More...

How do you calculate the hedging power on the VIX calls? I'm sure you already know this, but they are not based on the value of the spot VIX. They more closely track the VIX futures, which don't react to moves on the VIX very much until the last 2 weeks before settlement when they start converging.
 
I was hoping we would get a much deeper drop for a nice credit but I missed the bounce off of MA support. Last Friday was a better opportunity but never got in.

Quote from rallymode:

phil, why today vs 3 days ago when we hit 1290. And dont say you dont care about entries.
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I do not expect to perfectly hedge the position with VIX calls. I am more concerned with hedging an unexpected major even that would send vols spiking over 20% and a drop in the market. I pick a % or $ amount of the net credit I am willing to spend on insurance and allocate it to either the VIX or SPY and then determine where I want to go.

Last time VIX ran over $20, the 20.00 Calls moved to over $4.00. So buying calls at $0.60 at that strike would provide a nice profit to partially offset the cost of adjusting or closing, which ever makes more sense.

With the VIX calls it is not an exact science but more so a unique way to hedge partially against major vol changes which accompany large market drops.

Quote from tplast:

How do you calculate the hedging power on the VIX calls? I'm sure you already know this, but they are not based on the value of the spot VIX. They more closely track the VIX futures, which don't react to moves on the VIX very much until the last 2 weeks before settlement when they start converging.
More...
 
Quote from optioncoach:

I do not expect to perfectly hedge the position with VIX calls. I am more concerned with hedging an unexpected major even that would send vols spiking over 20% and a drop in the market. I pick a % or $ amount of the net credit I am willing to spend on insurance and allocate it to either the VIX or SPY and then determine where I want to go.

Last time VIX ran over $20, the 20.00 Calls moved to over $4.00. So buying calls at $0.60 at that strike would provide a nice profit to partially offset the cost of adjusting or closing, which ever makes more sense.
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It's difficult to know what will give you a better bang for your buck. I've not found a good way to predict what the price of the VIX options should be at any given time and VIX value. You need to take into account the spread between the futures and the spot in both price and volatility. The spread on volatility is huge if the futures have more than a few weeks to go.

I don't think that past prices based on the VIX are good predictors by themselves. For example, today the OCT VIX future is at 140.4. If the VIX goes to 20 tomorrow, the futures may only go to 170.0. However, if the VIX goes to 20 near expiration the futures will go near 200.0 as well.

This is not necessarily bad as the hedging power increases with time, the same as your gamma risk. The question is how to quantify all this?
 
It is still a relatively new product and I have used the fast food method of simply allocating a portfion of the credit to the hedge with the understanding that it will only serve as a partial hege as you cannot fully hedge these credit spread positions. Since these products are relatively new it is still hard to determine how they will react as I only can go on currently how they have reacted. If I get the SPX spread filled I will most likely add the VIX and we can track it in case of emergency lol...

Quote from tplast:

It's difficult to know what will give you a better bang for your buck. I've not found a good way to predict what the price of the VIX options should be at any given time and VIX value. You need to take into account the spread between the futures and the spot in both price and volatility. The spread on volatility is huge if the futures have more than a few weeks to go.

I don't think that past prices based on the VIX are good predictors by themselves. For example, today the OCT VIX future is at 140.4. If the VIX goes to 20 tomorrow, the futures may only go to 170.0. However, if the VIX goes to 20 near expiration the futures will go near 200.0 as well.

This is not necessarily bad as the hedging power increases with time, the same as your gamma risk. The question is how to quantify all this?
More...
 
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