SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
DEC POSITIONS:
-300 SPX DEC 1135/1140 Put Spreads @ $0.30
-300 PSX DEC 1275/1280 Put Spreads @ $0.40
+ 200 SPY DEC 127 Calls @ $0.30 (partial hedge for Turkey Rally potential)
Margin - $150,000
Net Credit (- hedge) = $15,000
Return at expiration = 10%
Phil
-300 SPX DEC 1135/1140 Put Spreads @ $0.30
-300 PSX DEC 1275/1280 Put Spreads @ $0.40
+ 200 SPY DEC 127 Calls @ $0.30 (partial hedge for Turkey Rally potential)
Margin - $150,000
Net Credit (- hedge) = $15,000
Return at expiration = 10%
Phil
As of today things look a little bearish to tell you the truth. However I do not feel that it is bearish enough to crash to 1140 or even 1150 so on the downside I feel protected by the distance. On the upside, things can change pretty quickly in a week or two as we get closer to Thanksgiving so that is why I placed the call hedge. Market has some strong headwinds right now as you can see 1222 or so was very hard to break and hold in the SPX. We might be here for a few days before any real direction takes hold.
Phil
Phil
I have my Fib lines drawn using the Aug highs this year to the mid-October lows and we seem to be sitting on the 61.8% fib line now. I felt when I opened my IC that I would stay just outside the OCT lows on the PUT spread (1175/1165). For the CALL spread I chose the 1280/1270. Each side paid 1.10 with the SPX @ 1220.
How do choose your IC spreads ? .... looks as though you're staying outside (at least) YTD highs and lows ...
How do choose your IC spreads ? .... looks as though you're staying outside (at least) YTD highs and lows ...
Coach:
Given the following two (and there may be more):
1) The IV skew favoring premiums with puts
2) No corresponding black swan event for bear calls as there is with bull puts (all other things being equal and assuming that one is trading deep OTM spreads)
I'm thinking that these considerations (and perhaps others) point to a trading strategy that puts bear calls on earlier (relative to opex week) than bull puts.
Forgetting the effect on margin (which I grant can be huge depending upon how large your account is and what % goes to spreads), why not put bear call spreads on 60 to 75 days before expiration (richer premiums) and keep the bull put spreads at 30 to 45 days before expiration.
I have no basis right now for choosing 60 to 75 days, I'm just proposing that considerations [such as 1) and 2) above as well as others] suggest that the timing of placing bear calls vs. bull puts shouldn't necessarily be the same.
As an example, if I place a Jan 1300/1310 bear call order, I might get 0.80 to 0.90 for a credit. Isn't it generally true that January is a down month relative to the typical bull push in November and December.
Thoughts, comments
Given the following two (and there may be more):
1) The IV skew favoring premiums with puts
2) No corresponding black swan event for bear calls as there is with bull puts (all other things being equal and assuming that one is trading deep OTM spreads)
I'm thinking that these considerations (and perhaps others) point to a trading strategy that puts bear calls on earlier (relative to opex week) than bull puts.
Forgetting the effect on margin (which I grant can be huge depending upon how large your account is and what % goes to spreads), why not put bear call spreads on 60 to 75 days before expiration (richer premiums) and keep the bull put spreads at 30 to 45 days before expiration.
I have no basis right now for choosing 60 to 75 days, I'm just proposing that considerations [such as 1) and 2) above as well as others] suggest that the timing of placing bear calls vs. bull puts shouldn't necessarily be the same.
As an example, if I place a Jan 1300/1310 bear call order, I might get 0.80 to 0.90 for a credit. Isn't it generally true that January is a down month relative to the typical bull push in November and December.
Thoughts, comments
Look at OCT and NOV last year and what could have happened to call credit spreads first...
Phil
Phil
Clearly last October and November were strong moves upward, which apparantly is true most of the time for this time period.
I'm afraid my post wasn't clear and the example I cited was poor. I wouldn't actually place that example trade today. Instead I would wait for the market to go higher based on historical trends and then pick a reasonable point to try it.
My point is that I'm wondering if the difference in IV skew, difference in velocity of black swan events (maybe this is just my opinion) and coupling this with historical trends shouldn't all be used to decide when to enter a bear call spread versus a bull put spread. And I wonder if that entry point for bear calls wouldn't nominally be different than an entry point for bull puts. I guess the inherent assumption here is that we are trying to maximize premium for a probability of success of 90% or higher.
Anyway, I'm sticking with the game plan as it is now, but as a relative Newbie to spreads, I'm just questioning some "rules of thumb" and wondering if they can't be refined a bit.
Also, as an example, you used historical trends to refrain from placing bear calls until just yesterday (and rightly so). If we also believe that January is a down month (at least for the first two to three weeks), then why not consider placing a deep OTM bear call for January at an appropriate time (probably after Thanksgiving) based on previous historical trends.
I suspect that if I were to use this type of strategy in order to generate higher premiums, I would also probably not hold positions to expiration. Instead I would probably target 75 to 80% of the maximum profit as an exit point unless the spread was really way OTM close to expiration (2 weeks or less).
Thanks.
I'm afraid my post wasn't clear and the example I cited was poor. I wouldn't actually place that example trade today. Instead I would wait for the market to go higher based on historical trends and then pick a reasonable point to try it.
My point is that I'm wondering if the difference in IV skew, difference in velocity of black swan events (maybe this is just my opinion) and coupling this with historical trends shouldn't all be used to decide when to enter a bear call spread versus a bull put spread. And I wonder if that entry point for bear calls wouldn't nominally be different than an entry point for bull puts. I guess the inherent assumption here is that we are trying to maximize premium for a probability of success of 90% or higher.
Anyway, I'm sticking with the game plan as it is now, but as a relative Newbie to spreads, I'm just questioning some "rules of thumb" and wondering if they can't be refined a bit.
Also, as an example, you used historical trends to refrain from placing bear calls until just yesterday (and rightly so). If we also believe that January is a down month (at least for the first two to three weeks), then why not consider placing a deep OTM bear call for January at an appropriate time (probably after Thanksgiving) based on previous historical trends.
I suspect that if I were to use this type of strategy in order to generate higher premiums, I would also probably not hold positions to expiration. Instead I would probably target 75 to 80% of the maximum profit as an exit point unless the spread was really way OTM close to expiration (2 weeks or less).
Thanks.