SPX Credit Spread Trader

Quote from TrendSailor:

I finally get to agree with Mark; at least on this part.

I think those that like to say "have a plan" for every option trading contingency are living in a bit of a fantasy world. There is a dinstinct line between the theoretical world and the real-world.

It is hard to get fills at reasonable prices in a fast moving market that materializes out of no where. Sometimes its impossible to get anything close to the trading volume one needs (e.g. 100+ contracts) to "get out" or adjust. If anyone doubts this put yourself in the position of the other side of the trade. Who in their right mind would have taken your request to sell you long call protection today as the market shot straight up (irrationally and counter intuitively to the news) over 24 points (1.71%) after the FED meeting around 1:15 ? It took over 2.5 hours for that transient to normalize and a lot of that was forced by the closing bell. I bet not too many orders got filled on the rocket ride up until it found a flat spot for a 10 or so minutes.

And what plan in the real-world is going to help a trader who just was unlucky to have finally got a large block of SPX CALL credit spreads to fill 15 minutes before the explosion up? How is that trader going to get back out of his shorts without getting a huge pattern day trader margin call to the tune of hundreds of thousands of dollars (or millions) for going in and out of his 100 shorts in the same day? Yeah, sure there is the option of overlaying directional debit spreads or pushing into the next month(s) before one understands the physchology of "why" it moved up so violently. But that could get you in double trouble if the adjustments were not executed perfectly under the stress of trading or if the market resets itself on a misfire of economic news the next trading day.

Some of the people in this forum have incredible technical knowledge and give some outstanding theoretical trading advise. But a few of the same sound as if they have never traded more than a few dozen contracts at a time or must think that the average trader has a multi-million dollar buying power margin account. Some of us do but I bet a lot don't.

TS
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TS,

I have nothing either positive or negative to offer regarding your post.

You have my best wishes with your trading (with or without a trading plan).

As far as a trader being 'unlucky' with the timing of their executions, you seem to be content with the belief that it is simply 'bad luck' or 'good luck' associated with trade executions, and that skill or planning has nothing to do with success or failure.

And you are welcome to believe as you wish about which traders are only trading a dozen or so contracts.

Enjoy your bliss.
 
Quote from Zegras:

Well, I decided to go out on my own this month (although I did replicate a service I will not mentions position). I have a 140 point range and my sohrt strikes are 1460-1320. After the huge run up this week and over 4 weeks left until expiration I am somewhat uncomfortable with my current postion as it is only 25 points from the short call strike. What are my options (no pun intended) at this point? Take the hit and move on. Roll up both sides and take a potential smaller loss but still remain in a position with over 4 weeks left. Any suggestions would be great. Thanks. Zeg
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I am in the same situation. In fact I only did the call credit spread this month thinking the risk is to the downside.
I am a newbie to the SPX credit spreads and looking for suggestions to comeout of this trade with minimum loss. FYI - I did 2 contracts and still have $5k available in cash for any contingency trade + my broker (thinkorswim) will allow me to write equal number of put credit spreads (2) without additional margin requirement.

Is it a good idea to buy a EMini S&P 500 Futures contract?

Any suggestions are welcome.
Regards.
 
Quote from sri1dhar:

I am in the same situation. In fact I only did the call credit spread this month thinking the risk is to the downside.
I am a newbie to the SPX credit spreads and looking for suggestions to comeout of this trade with minimum loss. FYI - I did 2 contracts and still have $5k available in cash for any contingency trade + my broker (thinkorswim) will allow me to write equal number of put credit spreads (2) without additional margin requirement.

Is it a good idea to buy a EMini S&P 500 Futures contract?

Any suggestions are welcome.
Regards.
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If you are new (your first time) credit spread trading on the SPX and only $5K for adjustment I would definitely NOT recommend your trying to hedge with the Emini simply as that would tie up I think $3700. The other problem is being whipsawed out of your ES. I've tried it and others have tried but with mixed results. I seldom do it anymore. The last time I bought 2 ES to hedge to the upside was FEB 26 that night. What a surprise I woke up to the next morning :eek: I closed it of course but had already lost 12 pts.


I'm assuming your spread is 5 pts? with the short strike at 1460. If you read the earlier part of this thread you know that coach recommends looking at the possibility of either closing adjusting the spread when the market is about 15 pts away. I know that TOS Tom Preston is doing an experiment of just holding these high probability trades thru the bitter end and at least two have been total losses. (5pt spreads) However if the market doesn't move rapidly up you do have a chance to close now and perhaps open another spread farther (safer?) away if the market keeps going up. This is a real judgment call and you will be right sometimes and wrong other times.

If the market does sell off or gives you a chance to put on a put credit spread you might take it. With a put spread you can go much farther away like 2 sd and get close $$ to what you can for a call credit spread...although lately it seems that call spreads are pricing better than put spreads. When that happens it seems the market really does go up ...up ...up. There is no magic formula to manage far out of the money credit spreads. It comes down to personal experience and preference. good luck.
 
Quote from MechTrade:

TS,

I have nothing either positive or negative to offer regarding your post.

You have my best wishes with your trading (with or without a trading plan).

As far as a trader being 'unlucky' with the timing of their executions, you seem to be content with the belief that it is simply 'bad luck' or 'good luck' associated with trade executions, and that skill or planning has nothing to do with success or failure.

And you are welcome to believe as you wish about which traders are only trading a dozen or so contracts.

Enjoy your bliss.
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Thank you Mech!

I never said you should have trades planned for every contingency. A plan means to have a good idea of how to adjust or get out of trades when things go against you (or you get unlucky). What you want to avoid is the deer in the headlights phenomenom! (Been there...not a good plan.) It is fine to ask for opinions on this thread but they should not replace your own thought process and risk management.
 
Quote from sri1dhar:

I am in the same situation. In fact I only did the call credit spread this month thinking the risk is to the downside.
I am a newbie to the SPX credit spreads and looking for suggestions to comeout of this trade with minimum loss. FYI - I did 2 contracts and still have $5k available in cash for any contingency trade + my broker (thinkorswim) will allow me to write equal number of put credit spreads (2) without additional margin requirement.

Is it a good idea to buy a EMini S&P 500 Futures contract?

Any suggestions are welcome.
Regards.
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Just some friendly advice -- find another market. The SPX is inappropriate for your account size, just on the slippage alone.


Check out the RUT, for example.
 
With a change in margin rule (IB is offing portfolio margin for accounts over 100K next week), are there any favorable strategies under the rule?

For example, extra wings will provide us more leverage now than that in the past. Is long wings favorable strategies under new rule? Naked selling doesn't require as much margin as before. It is similar to span. Should we use those future option strategies now (like domestic does)?

All discussion are welcome.
 
Quote from yip1997:

With a change in margin rule (IB is offing portfolio margin for accounts over 100K next week), are there any favorable strategies under the rule?

For example, extra wings will provide us more leverage now than that in the past. Is long wings favorable strategies under new rule? Naked selling doesn't require as much margin as before. It is similar to span. Should we use those future option strategies now (like domestic does)?

All discussion are welcome.
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How did you hear about this? I have not been notified.

1) Don't jump into something new just because you can. Be certain it fits your investment style

2) In your case, you may (or you may not) find it more profitable to buy nearer term options for protection, rather than the vega-rich longer-term options that you currently like to own.

Mark
 
Quote from yip1997:

[edit] Mark, are you interested in looking at Domestic's long short-term, short long-termx2 strategy with RUT?
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Always interested in looking at new ideas. But, I have no clue what this strat involves.

Do you mean buying the near term options as extra longs vs. selling longer-term options? That does not appeal to me - but I do see the advantages of this methodology.

Mark
 
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