SPX Credit Spread Trader

Quote from jeffm:

I generally buy calls around the same time I am selling puts (and vice versa). Once the market settles down a bit, I will definitely be looking for some cheap call spreads, or perhaps just long calls depending on price. I see it more as cheap insurance than as a for-profit trade.



You do still have them all in 1 basket. They're just in different compartments of the basket. When the basket gets dropped like today, all the eggs are similarly impacted. Or did you find that your RUT spreads reacted much differently today from your NDX or DJ? You mentioned that you didn't have many (any?) short put spreads, so you may not have noticed.

In other words, is the effort put into diversification giving you the results you want? Could you apply that same effort and just trade 1 stock index, but also move into some lower correlated markets like crude or hogs?
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Yes, Jeff, you are correct. What ends up happening is that my entry points very over time. Even though all of the various indices do rise and fall together, there is some variance in timeframes and degree of movement. This coupled with the difference in entry points gives some degree of diversification.

I have not been doing this for very long and over time I may change my mind as to the benefit. For now I am pleased. Today had no negative impact on me and most of the credit goes to not being heavily in to any Put positions.

Bob
 
Its swift and sudden. So its a black signet at least. We'll see what happens when it grows up in the next few days.

Found this image. Just make sure you're not the girl in the water :) She looks peaceful, but that may just be because she's dead LOL

blackSwan.jpg
 
I would call it a Black swan given it is a 50 point drop in the SPX and some people go out only 40 or 50 points or so lol...

I am not in any spread currently so no harm but I might bite tomorrow depending on where we open.
 
Quote from optioncoach:

I would call it a Black swan given it is a 50 point drop in the SPX and some people go out only 40 or 50 points or so lol...

I am not in any spread currently so no harm but I might bite tomorrow depending on where we open.
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Coach,

Being the armchair prognosticator that you are (and for a chance to look like a genius), what's your call on the SPX in the next few days and into March expiration?

AZD
 
By the way, those tens of thousands of 1340/1360 spreads that were being filled at .20 - - -

Well, at $5 plus on the natural, they aren't looking too bad for the buyer.

AZD
 
I will now better tomorrow whether this is a one day spike or true market reversal. We have been up for so long with little or no bad news it makes sense that on such a huge suprise out of Asia where the Asian crisis is still fresh in people's minds would cause a sell-off which was self-fueling and kept running lower and lower.

I will want to see what we get tomorrow before guesstimating. On the downside I see 1350 - 1400 as the range from here until MAR expiration. Pretty wide range but I do not like picking specific directions only ranges :)


Quote from arizonadreamer:

Coach,

Being the armchair prognosticator that you are (and for a chance to look like a genius), what's your call on the SPX in the next few days and into March expiration?

AZD
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Interesting day.
It seems that most traders were expecting some sort of pullback in the equity markets. People have been talking about how they expect the market to "take a breather" for a while. I've lost count of the number of people who've said that the market hasn't pulled back by more than 2% in many months. I even positioned myself for a mild-moderate pullback.
Yet most traders and investors, myself included, were surprised by the severity of today's decline. Given the well known history of dramatic market moves, how can this decline still surprise us? How is that we instinctively know to take our hand off a hot stove, but forget how destructive bear markets can be?
I think the market drops significantly more in the next week or so. Take a look at Oct '87 again. Oct 16th market drops 5%. Next trading day, Oct 19th, it drops another 20%. Today's drop of 4% pales in comparison. Even if we have a mild drop by historical standards, that could be equivalent to another 100 points on the SPX (7%). Given that the cost of downside protection is relatively cheap, I for one am adding to my downside gamma.
Keep your guard up.
ST

Talk about timing:
www.amazon.com/Black-Swan-Impact-Hi..._bbs_sr_1/002-1231559-3892859?ie=UTF8&s=books
Taleb's newest book, "The Black Swan", to be released in April. Some guys got all the luck.
 
Quote from optioncoach:

I would call it a Black swan given it is a 50 point drop in the SPX and some people go out only 40 or 50 points or so lol...
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I disagree.

IMO, a Black Swan event is one that happens so quickly that market participants have no opportunity to trade their way out of its path.

Today, there was plenty of opportunity to exercise trading judgment to either minimize or prevent trading losses. Not to mention those daytraders who read it right and profited.
 
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