SPX Credit Spread Trader

Quote from RichardRimes:

Yip I'm an old time fundamentalist :p basically on the SPX I do note the relative value's esp..PE. In early Dec I noticed that the value of the PE on the spx was 19...rather high historically. You look at other indicators such as price to cash flow etc for a few "fundamental" clues. Vix is important as it shows whether there is "fear" or "complacency" in the market. Good over-all judgment of the economy and the "why"s behind the economy. The SPX will move on many types of info so an a basic understanding of maco econ certainly doesn't hurt.

The problem with fundamental's and options is very simply... time. "Value" based stock pickers look long and hard at fundamentals both macro and equity specific, however they generally have a pretty long time frame perhaps between 6-18 months. They have no need of being right in a short time period.

As far as today, my best guess is not fundamental but this upcoming 3 day weekend into expiry week is causing the "market" to attempt to shake out the weak shorts. We will see what the market thinks of the macro econ situation after next week when earnings start coming in.

I don't know if any of this garbage is of any help but since I spent the time typing...hell I'll just submit :D
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I agree RR. But in addition I think the market was reacting mainly to oil prices dropping in addition to a couple good ER today.
 
Quote from Cache Landing:

What I mean is that almost every position you open has - exp because of slippage and commiss. Slippage is amplified the further OTM you go. That means greater -exp at the open. The -exp on the FOTM also grows faster with a quick adverse move. That is logical because an FOTM vertical is almost strickly a theta play. Movement is the enemy. The CTM version is more a delta play.

But in answer to your question, no you can't create +exp by buying the spread instead.
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When you guys talk about CTM and FOTM, what kind of % out of the money are we talking here? One guy's CTM could be another's FOTM and yet another's WFOTM! :confused:
 
Thats a great point! It's very subjective, although most ppl consider 1 to 2 SD to be reasonably OTM and close depending on the index...SPX I would think close is 10-15pts and FOTM abt 50. I think each person determines for themselves after experience and close calls. On the SPX most doing FOTM iron condors are looking at at least 100pts wingspan.
 
Sharing a visual I'm playing with.

The attached is a chart of the SPX with Bands calculated from a correlated daily VIX value using the formula:


StDevOffset = Close(SPX) * (Close(VIX) / 100) * sqrt(DaysToThirdFriday()/365);

Plot(Close(SPX) + StDevOffset,"CallSide",1,1);

Plot(Close(SPX) - StDevOffset,"PutSide",1,1);

The Bands cover a period from 1st day of expire month to expire day or current day of current month.

JPeg only shows the last 11 months or so, but I've done the calcs on about 17 years worth of data.

Offered FWIW. The Bands are certainly different from traditional charting bands.

I'm planning to do a little backtesting to see if the 70% containment rule is close.

D
 

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Quote from tyrant:

When you guys talk about CTM and FOTM, what kind of % out of the money are we talking here? One guy's CTM could be another's FOTM and yet another's WFOTM! :confused:
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For me, inside 1sigma = CTM, around 1sigma = OTM, and around 2sigmas = FOTM
 
I have been trading Short Iron Condors for quite some time and I have found a few good sites that actually auto-trade these for me. I prefer to only use SPX and a few other European style options but that discussion is for another day. There are a slew of newsletter services who disguise there straegies as an innovative, proprietary strategy when indeed the only strategy they use is the Short Iron Condor strategy. A few services that offer these that seem to do a god job are www.wiseoptions.com and more recently www.crowderinvestments.com. Crowder only offers trades in his newsletter but I think he might actually start to auto-trade condors in the near future. Not sure about that one though. One thing is for certain, I recently came across his White Paper and was amazed by the in-depth discussion of the Short IRon Condor strategy. What seperated their work with others that I have read is that he offered exit strategies. DOes PArnos also trade Short Iron Condors? Does anyone know how good his service is? Also someone recommend some other sites that trade or discuss Sohrt IRon Condors? I think I have pretty much covered them all but I am always happy to educate myself further on what I feel is one of the top three options strategies.
 
Quote from Cache Landing:

For me, inside 1sigma = CTM, around 1sigma = OTM, and around 2sigmas = FOTM
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At current volatility, roughly how many pts or % equates to 1 sigma in SPX? How about in ER2?

Thanks in advance.
 
Quote from MechTrade:

Sharing a visual I'm playing with.

D
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Hey, this is a family friendly sort of place. Please, no porno, fantasies or other salacious activities/suggestions here...

:D

TS
 
Quote from uglyboy:

Very interesting. How are you interpreting this?

Ugly
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No interpretation yet. Just playing with the data (starting with the visual).

Objective is to analyze, optimize and simplify spread level determination. From here I'll do some backtest coding to test band containment of SPX prices, then I'll apply various smoothing techniques along with band adjustments for optimization.

I'll also be able to use the script to plug-n-play with other indexes correlated with their Volatility Indexes like the QQQQ.

Is there a consensus that the calculation is a reasonable proxy for Sigma-1?

D
 
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