SPX Credit Spread Trader

Studying the technicals I see the SPX at an overextended point so with it closing at 1230 or so I bought 5 NOV 1230/1225 Put Spreads at $1.80 for a quick profit on the pullback Monday or Tuesday. I know this is a debit spread but thought I would share this position.

Also wanted to share my view that we were in a sort of flag formation the past 5 or 6 days and broke out today on a nice surge. The Flag formed after the nice run up from 1176 (lowest close) and entered the flag at around 1215 or so- a move of about 40 points. Flags often are consolidation points in the middle of a move so if we treat the flag as a potential halfway point of the move then the next target would be 40 points higher from the breakout which was at around 1223. Therefore, I am forecasting as of now a target of 1263/1265 for the end of this current move.

The lead in to this move took about a month so I could estimate that the completion of this move could also take about a month which would run into DEC expiration. Based on us possibly being at or near 1265 by DEC expiration I feel comfortable with my 1275/1280 call strikes. If we hit 1265 a lot sooner on a surge then we could certainyl be higher by DEC expiration.

There is a short-term overhead resistance in the 1235-1245 range which might give hte move some pause and be the first test of its strength. The market might even bounce around there before culminating in its move to 1265-ish. There is no exact measure so I can only estimate and any unexpected news throws this out of whack.

I am just giving you my view of the charts so take em with a grain of salt.
 
I closed it for a loss. I learned something from it though.

NDX is too wild and unpredictable for spreads trading. From now on I am going to stick with the SPX; I swear.

I am loosing because of my ego. I should have never been in thta trade anyway.

Thanks for your concerns. After all it's money. life goes on

I am going to follow your trades and maybe I will be able to contend myself not to make these stupid moves anymore.



Quote from rdemyan:

Piccon:

I see the NDX closed above 1650. How did you make out with your problem? Hopefully, things worked out reasonably well, under the circumstances.
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I've posted here before on a worse situation that I had in July. I made tons of mistakes and the worst of all was not getting out with the loss before the weekend. Worst weekend of my entire life. Also, at that time, I never had plans in place for getting out of my credit spreads. So when I had to, I didn't really know what I was doing.

Anyway, depending upon the size of your loss, it might take some time to get over this. I know I traded in August, but was so jumpy that I overadjusted and had a small loss for that month.

I think it is smart to only trade the SPX or something similar in terms of being slow moving and lumbering. I previously did credit spreads on Google and CME (I don't need to say much more; just look at where both of them are now) and the losses from those two were fairly large.

One thing I did that helped me was I placed trades in September, October and November (except for the Nov call spread:( ) that were more OTM than Coach. The thinking was that if the market moved against me, I could watch Coach adjust first so I would get the benefit of his analysis. It meant lower premiums, which I've learned to live with. After that July fiasco, I'll trade money for more tranquility any day.

However, lately I've started to take on more risk and it resulted in a lower profit for November. For me at least, it's a constant battle to fight greed and even more importantly, complacency.


Best of luck to you.

Quote from piccon:

I closed it for a loss. I learned something from it though.

NDX is too wild and unpredictable for spreads trading. From now on I am going to stick with the SPX; I swear.

I am loosing because of my ego. I should have never been in thta trade anyway.

Thanks for your concerns. After all it's money. life goes on

I am going to follow your trades and maybe I will be able to contend myself not to make these stupid moves anymore.
More...
 
Coach--

how much stock do you put in Technical Analysis? My take is that it probably works when there's no big news. But big news is going to drive the market no matter what the TA says.

Quote from optioncoach:

Studying the technicals I see the SPX at an overextended point so with it closing at 1230 or so I bought 5 NOV 1230/1225 Put Spreads at $1.80 for a quick profit on the pullback Monday or Tuesday. I know this is a debit spread but thought I would share this position.

Also wanted to share my view that we were in a sort of flag formation the past 5 or 6 days and broke out today on a nice surge. The Flag formed after the nice run up from 1176 (lowest close) and entered the flag at around 1215 or so- a move of about 40 points. Flags often are consolidation points in the middle of a move so if we treat the flag as a potential halfway point of the move then the next target would be 40 points higher from the breakout which was at around 1223. Therefore, I am forecasting as of now a target of 1263/1265 for the end of this current move.

The lead in to this move took about a month so I could estimate that the completion of this move could also take about a month which would run into DEC expiration. Based on us possibly being at or near 1265 by DEC expiration I feel comfortable with my 1275/1280 call strikes. If we hit 1265 a lot sooner on a surge then we could certainyl be higher by DEC expiration.

There is a short-term overhead resistance in the 1235-1245 range which might give hte move some pause and be the first test of its strength. The market might even bounce around there before culminating in its move to 1265-ish. There is no exact measure so I can only estimate and any unexpected news throws this out of whack.

I am just giving you my view of the charts so take em with a grain of salt.
More...
 
Just be careful about blindly following other people's trades. You can certainly use the discussion to refine your approach and trading but you need to develop the ideas inside yourself as well to adapt them to your own risk management and trading style. That is how you can make the strategy your own.

Quote from piccon:

I closed it for a loss. I learned something from it though.

NDX is too wild and unpredictable for spreads trading. From now on I am going to stick with the SPX; I swear.

I am loosing because of my ego. I should have never been in thta trade anyway.

Thanks for your concerns. After all it's money. life goes on

I am going to follow your trades and maybe I will be able to contend myself not to make these stupid moves anymore.
More...
 
Major unexpected news will drive the market no matter what analysis or approach you use. However in the SPX unexpected news is not a common even as with an individual stock. Also, TA and fundamental analysis of the market in general is the only tools i have to analyze the index and make a determination about expected moves for strike selection. I put a lot of stock in it and rely on it until the market makes a move that requires me to readjust my thinking or positions. I have seen to many support/resistance lines, flag patterns wedges, H&S, fib reatrcements give great guidance to think it does not help. I do not treat it as a tool for crystal ball predictions, just as guidance as to what strikes are most likely to expire OTM.

Phil

Quote from rjg96:

Coach--

how much stock do you put in Technical Analysis? My take is that it probably works when there's no big news. But big news is going to drive the market no matter what the TA says.
More...
 
I have a strategy, I told you. The 4 sigma would have worked well but I didn't follow it. It's my bad.

20 days ; 4 sigma give me the right cushion and is close to your trading strategy; sometimes it puts me 20 points below or over your trading points. I lost but I hope I will get something from it.

Every monday I am going to publish my strategy BPS and BCS Short side and I will ask you for your ideas.

Cheers

Quote from optioncoach:

Just be careful about blindly following other people's trades. You can certainly use the discussion to refine your approach and trading but you need to develop the ideas inside yourself as well to adapt them to your own risk management and trading style. That is how you can make the strategy your own.
More...
 
If I can add one more thing, because Coach is absolutely right. Depending upon how big your loss was you may feel the need to put more margin at risk in order to get that loss back (I feel it every month and it's hard to fight). But don't do it. Stay within your comfort parameters and what will work for you.

I think Coach uses a guideline of about 1/3 of his portfolio for credit spreads (I'm sure he'll chime in on that if I'm wrong). I've come down to that level myself and sleep a whole lot better as a result.

Credit spreads can seem like easy money, but the risk, even with the SPX, is very real.



Quote from optioncoach:

Just be careful about blindly following other people's trades. You can certainly use the discussion to refine your approach and trading but you need to develop the ideas inside yourself as well to adapt them to your own risk management and trading style. That is how you can make the strategy your own.
More...
 
I have heard from a reliable source that if you ask people charged with crimes such as theft, gambling related crimes, embezzlement,... they very often say that they had a recent large monetary loss and were committing the crime "just one time" to make up for the loss. The same dynamic is at play with traders who have experienced a large loss and want to ante up the risk just long enough to "make up the loss". Of course, the results are often painful...


Quote from rdemyan:

If I can add one more thing, because Coach is absolutely right. Depending upon how big your loss was you may feel the need to put more margin at risk in order to get that loss back (I feel it every month and it's hard to fight). But don't do it. Stay within your comfort parameters and what will work for you.

I think Coach uses a guideline of about 1/3 of his portfolio for credit spreads (I'm sure he'll chime in on that if I'm wrong). I've come down to that level myself and sleep a whole lot better as a result.

Credit spreads can seem like easy money, but the risk, even with the SPX, is very real.
More...
 
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