SPX Credit Spread Trader

[TrendSailor]

Quote from ryank:

After some prodding by other ET members, I opened some calendars for a debit. I haven't been able to find any credit spreads or diagonals I like for SPX so I am now adding more tools to my options toolbox.

I have been resisting the calendars since: 1) I am trying to produce a fairly regular monthly income stream and front month IC has worked out pretty well (80% of the time) with a natural expiration credit/payout timeline and 2) I am not experienced with calendar spreads on the SPX and wonder if there may be liquidity problems and extra trading complexity I don't normally get into with front month trading, 3) I am not as familiar with adjustment techniques for calendars that go sour and 4) I don't trust my own TA and situational analysis radar accuracy for more than one option period out since the larger multiple period window holds me hostage to much greater adverse geopolitical news that can dramatically alter expectation. Basically, from what I gather, with calendars the entire character of the trade changes from relatively slow action bottom fishing to something more like active fly casting. The latter, while very pretty and stylish, is a hell of a lot of work for small fish. My personal inclination is to put on cheap gamma bait to get in. Then it’s usually a lazy game of snoozing as time nibbles it all away & hoping that no 2 sigma storms suddenly come out of nowhere unannounced…

Having a philosophical proclivity to believing that most any problem can be solved with rigorous use of a just a few good general purpose tools (e.g. a hammer, a screwdriver and a good pair of pliers ) I find that 98% of the time I can “get by” (e.g. make fair money) with just a few "low-tech" trading tools. But at this stage of my life I guess I can afford to start moving up the Maslow hierarchy and begin adding new tackle to my tackle box. Perhaps I’ll just jump in live with a few small calendar trades to get exposed to the practical trading dynamics and subtleties. If after a few months I can get anything moderately consistent out of it I can then always scale it up and go for bigger fish.

TS

 

[TrendSailor]

Awesome VIX shot up to toward 13 there for a bit so I am going to try and set up some Jan put/call spreads about 70 or so out and its now giving fair premium as SPX hunts for support up and down. But Jan is a long options period so I'll attempt to opportunistically average in over the next 2 weeks to build up the positions around a support mean ...

TS

 

[yip1997]

Quote from TrendSailor:

I have been resisting the calendars since: 1) I am trying to produce a fairly regular monthly income stream and front month IC has worked out pretty well (80% of the time) with a natural expiration credit/payout timeline and 2) I am not experienced with calendar spreads on the SPX and wonder if there may be liquidity problems and extra trading complexity I don't normally get into with front month trading, 3) I am not as familiar with adjustment techniques for calendars that go sour and 4) I don't trust my own TA and situational analysis radar accuracy for more than one option period out since the larger multiple period window holds me hostage to much greater adverse geopolitical news that can dramatically alter expectation. Basically, from what I gather, with calendars the entire character of the trade changes from relatively slow action bottom fishing to something more like active fly casting. The latter, while very pretty and stylish, is a hell of a lot of work for small fish. My personal inclination is to put on cheap gamma bait to get in. Then it’s usually a lazy game of snoozing as time nibbles it all away & hoping that no 2 sigma storms suddenly come out of nowhere unannounced…

Having a philosophical proclivity to believing that most any problem can be solved with rigorous use of a just a few good general purpose tools (e.g. a hammer, a screwdriver and a good pair of pliers ) I find that 98% of the time I can “get by” (e.g. make fair money) with just a few "low-tech" trading tools. But at this stage of my life I guess I can afford to start moving up the Maslow hierarchy and begin adding new tackle to my tackle box. Perhaps I’ll just jump in live with a few small calendar trades to get exposed to the practical trading dynamics and subtleties. If after a few months I can get anything moderately consistent out of it I can then always scale it up and go for bigger fish.

TS

TS,

My limited experience with ICs and diagonals shows that ICs provide better return in most of the time than my diagonals (there are many ways of trading diagonals, so it is hard to generalize). Most of the time the return on margin for diagonal is less than 50% of that for ICs. However under hurricane or financial storms, diagonal might provide a huge return once awhile.

Your choice depends on your goal. Do you want steady income? Do you want to protect yourself from black swan? You need to define your goal before you decide which strategy is good for you.

 

[RichardRimes]

Quote from billp:

Sorry to write this here instead of starting a new thread, but can anybody comment on the TOS demo execution. It seems that I can easily get fills at a good rate and many times between the bid/ask spread. Also, the speed at getting filled is pretty instantaneous. I don't recall this at all when I was doing real trading. (this applies to both options and stocks). Thanks

If memory serves...yes its easier to get fills on the demo because if ANY options trade at that price you get a fill. In real life if an option trades it may not be YOUR option.

 

[yip1997]

Does anyone know if it is legal to buy an option using one account and sell the same option using another account? Since option market is not that liquid, it is very easy for me to buy and sell the options at the same price at the same time by setting a limit order.

Currently I have shorted rut 800 call in one account, and longed 800 call with another account. The settlement commission is higher than the normal commission charge. I find it cheaper to close both option positions than paying for the settlement commission.

Any comments?

 

[RCMLLC]

Yes TOS's trade grid is only their version of level 2, and not the true level 2 which contains order depth. But for options, the trade grid is really adequate in my opinion.

Quote from billp:

Pls correct me if I'm wrong. I don't think that it is a real Level 2. Reason I make this remark is because I am looking at stocks (not options) and the 'Trade grid/market depth' for stocks just contain 'best price for exchange', whereas in a real Level II, you will see much more such as market makers etc. I've ever compared level II (as provided by esignal) versus TOS trade grid/market depth, and they are different. [Have never compared the level II for options between esignal and TOS, so can't really tell but it seems that the trade grid/market depth for options in TOS is the same as the stocks in TOS]. Also, (this may not be applicable for options), at times one can't see the total quantity for each exchange when the quantity is larger (as TOS has limited space and you are not allowed to widen the width column for the trade grid/market depth).

 

[yip1997]

Quote from No Option:

Yip:

TOS does have level 2 available.

You have to ask for it - it is not automatic.

They do not charge for level 2.

Enjoy!

Do you mean the real level 2 or the one that RCMLLC described?

 

[dagnyt]

Quote from yip1997:

Does anyone know if it is legal to buy an option using one account and sell the same option using another account?

As a market maker, and a registered broker-dealer, it was absolutley NOT ALLOWED.

The rules may allow for a retail customer to makes these trades, but I doubt it.

Don't do it unless you are 100% certain you are not violating the law.

Mark

 

[TrendSailor]

Quote from yip1997:

Does anyone know if it is legal to buy an option using one account and sell the same option using another account? Since option market is not that liquid, it is very easy for me to buy and sell the options at the same price at the same time by setting a limit order.

Currently I have shorted rut 800 call in one account, and longed 800 call with another account. The settlement commission is higher than the normal commission charge. I find it cheaper to close both option positions than paying for the settlement commission.

Any comments?

I am not 100% sure what you are attempting to do but you have 1600 total active contracts between both accounts not zero if that is what you mean. Attempting to make your own market? I don't think there is a legal issue with what you are doing since I don't recall signing any broker agreement disallowing multiple trading accounts. Maybe recheck the fine print on your broker agreements. The rules are probably more stringent though if you are a member of one of the exchanges or a licensed trader etc.

Frankly, another interesting dimension of having multiple accounts are the "agility" one has with capital gain taxes. I often do similar "constructive" trading across multiple accounts in this are since I have multiple trading accounts - one corporate account and two personal accounts (one a joint account with spouse). During major market declines or what proves to be bad marking timing or on adverse stock news I sell high beta stocks for tax purposes that are tanking toward what I consider a near bottom. Then those I want to keep long I buy back in a different account to reset my basis & go long for long-term capital gain into the next tax year. There is even a way to avoid commissions here if its a private trade but at my level its not worth the paper chase and the commissions are dirt cheap for the administration handling.

Brokers do not report to the IRS a consolidated view of separate account action or attempt to reconcile wash sale rules across multiple accounts. Nothing is reportable until a sale takes place and its quite easy to leg sales across multiple tax years. The obligation of reporting is ultimately up to the individual so I won't say or advise on what I personally do. But I will say that having a corp account can be very handy in the tax area.

Frankly, if you go long term capital gain on a buyback from a separate account it won't show up on 1099's till later years. I doubt IRS has the Cray's to run multi-year checks across multiple accounts and tax filing years to check that ever person in the country trading stocks is copacetic for the level of "chump change" tax obligations they could collect.

TS

 

[RCMLLC]

I believe he meant 800 as in strike price and not number of contracts.

Quote from TrendSailor:

I am not 100% sure what you are attempting to do but you have 1600 total active contracts between both accounts not zero if that is what you mean.

TS