SPX Credit Spread Trader

Quote from ryank:

True, call diagonals are a little different than the puts as volatility works against you when the market pops like it has today.
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I've touched on this earlier, but upside delta/long vega often earn on smile during an bull move. The OTM smile trades from concave to convex as you approach the upside strikes.

Simply look at atm vols vs vols 20-30 points otm to the upside. The slope is similar to dvega/ds under a normal distro, but >mag.
 
Yeah I think the Cross-Month FLY and adding more layers to it on the go might be a nice low risk/high reward strategy assuming I close out at the first wing expiration or adjust threafter...

I raised the left side of the graph through the PUT FLY and Short OTM Call calendar. If we keep rallying I will have to adjust the upside, maybe, depending on my modelling.

Quote from riskarb:

Won't happen. He'll earn on vol on a trade to his strikes.
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rally/risk,

You guys have pointed out the better r/r with atm credit spreads, naked strangles and straddles vs wtfotm credit spreads. How would you adjust say a naked straddle as the market hits your b.e. pt to the upaside?
 
Quote from LeonPhelps:

rally/risk,

You guys have pointed out the better r/r with atm credit spreads, naked strangles and straddles vs wtfotm credit spreads. How would you adjust say a naked straddle as the market hits your b.e. pt to the upside?
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I have quite a few hedge regimes. Initially I may hedge half of my deltas at each sigma -> hedging frequency and size increases as $sigmas decrease. Basically linear w.r.t. gamma-position. Both may increase dramatically since I am typically short body and long wings.

I rarely sell a straddle w/o significant delta exposure. I simply don't see many opportunities in isolating vol at the expense of gamma. Both are simply too cheap here.

I would recommend taking a directional bet with edge [skew] and buying the wings when things seem to be going awry.
 
Quote from tplast:

Well, I finally closed my OCT 1335/1350 spreads for 12 debit. I took 5.9 credit for them so it is a loss of 6.1

They held up pretty well around 1:1 risk/reward even after being 25 ITM.

With the ES trades I did on the long side (held some from 1333 :p), this month will end up in a scratch.
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Hello tplast,

Fully agree that CTM verticals have a better risk reward than far OTM verticals. However, what has been keeping me away from them is the fact that when CTM verticals go ITM, theta works against these spreads (there is lesser and lesser time for the market to go OTM again).

How do you handle this situation if your SPX adjustment level is not hit, but the market sits ITM? Am I right to say that you exit if the price of the vertical becomes twice what you collected initially?

What if your position was still open (ie the market hadnt rallied so much) and SPX trades around 1345 during expiration week / Thu afternoon. Wont you have to give back all the credit (including what you had collected for the put side) and then some to close the trade?

Did you trade put verticals CTM too? Thank you.
 
Well I'm still holding the 1375/1380 spread sitting with about 15 points of wiggle room. The 15 point distance is my decision point. I took in about .35 for the spread and it's now priced this morning at .95. Considering the crazy enthusiam for the market right now, I am considering closing the spread. The 76.4 Fib line is at 1362, the last line of defense and if we break this line, there is absolutly NO technical top.

My main sticking points with closing it today are:
#1) This spread should experience significatnt decay over the next few trading days, unlike the entire time I held it. I would hate to pay more to close it today than on Monday, Tuesday

#2) With the market striving to reach higher highs, and a Dow 12K, I am considering just closing the short and letting the 1380 long run.

#3) Adding a SPY hedge

Looking for a few suggesstions or opinions on what to do. Roll, hedge, close?
 
Quote from blk:

Hello tplast,

Fully agree that CTM verticals have a better risk reward than far OTM verticals. However, what has been keeping me away from them is the fact that when CTM verticals go ITM, theta works against these spreads (there is lesser and lesser time for the market to go OTM again).

How do you handle this situation if your SPX adjustment level is not hit, but the market sits ITM? Am I right to say that you exit if the price of the vertical becomes twice what you collected initially?

What if your position was still open (ie the market hadnt rallied so much) and SPX trades around 1345 during expiration week / Thu afternoon. Wont you have to give back all the credit (including what you had collected for the put side) and then some to close the trade?

Did you trade put verticals CTM too? Thank you.
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Twice the credit is my absolute, do not pass stop. I usually close them much early, this is the first time I let them go to that point. The reason is that, believe it or not, I still believe will get a big drop soon :D. I don't think it worked so bad at the end, since I would probably had open another higher call spread that would have been overrun as well.

I've never hold them until expiration, but instead exit as soon as 2-3 credit profit is available. In any case, I close them before expiration week.

And no, I didn't do any put spreads as we never got a drop.
 
I just closed the exact same spread today that I had rolled into from the 1360/65 before the rally yesterday. Rolled to the Nov 1400/05 for even. Cant take any more chances with this thing.

Quote from burrben:

Well I'm still holding the 1375/1380 spread sitting with about 15 points of wiggle room. The 15 point distance is my decision point. I took in about .35 for the spread and it's now priced this morning at .95. Considering the crazy enthusiam for the market right now, I am considering closing the spread. The 76.4 Fib line is at 1362, the last line of defense and if we break this line, there is absolutly NO technical top.

My main sticking points with closing it today are:
#1) This spread should experience significatnt decay over the next few trading days, unlike the entire time I held it. I would hate to pay more to close it today than on Monday, Tuesday

#2) With the market striving to reach higher highs, and a Dow 12K, I am considering just closing the short and letting the 1380 long run.

#3) Adding a SPY hedge

Looking for a few suggesstions or opinions on what to do. Roll, hedge, close?
More...
 
Just an aside, I am having am amazing view out my window today and yesterday. I live near the pentagon and they are dedicating a new Air Force memorial in a few days.

For the day they are going to have a big air show flying overhead and they have been practicing over my building flying REALLY low. There were F-14 and F-16s flying in formations and dog fighting over head. I swear they were about 100 feet over the top of my building. I just saw one of those flat stealth bombers go over and right now 3 F-14s and a single jet flew over in tight formation. Every 10 minutes I hear a roar and rush to my balcony and see some really cool air force jets flying at about 750 feet or so.

Anyway it is a nice distraction but a little scary how close to the tall buildings here they are lol..
 
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