SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Hey Andy,
I usually do much larger spreads than Coach. The good is that you can go further away from the index (SPX) and still get a decent premium. the Delta is usually much smaller, therefore a much larger move must take place before you ahve to adjust. The Bad, obviously the margin is larger, but when the index does move against you (like Oct.) the adjustments seem to be more difficult because the purchase half of the spread does not provide nearly the hedge that the close spreads get out of it.
Cody
I usually do much larger spreads than Coach. The good is that you can go further away from the index (SPX) and still get a decent premium. the Delta is usually much smaller, therefore a much larger move must take place before you ahve to adjust. The Bad, obviously the margin is larger, but when the index does move against you (like Oct.) the adjustments seem to be more difficult because the purchase half of the spread does not provide nearly the hedge that the close spreads get out of it.
Cody
I would have to agree as of today that 1236 near Xmas is too much of a pullback without some really bad news. OUr current breakout was from the 1245-ish level and that seems to be the main resistance level a pullback could get to but even that is quite a drop in 3 weeks. With lack of bad news and consumers roaring into X-mas I see us flirting more with the 1275/11,000 SPX/DOW levels than the earlier breakout supports.
The problem is that volatility alone tells you nothing about direction, just volatility. So if IV is higher or lower than HV you are not getting any info about direction, you are using that as a tool to possibly determine if the IV is at a low or high extreme compared to historical volatility. You would still need to look at the price charts.
I have not done any spreads over 15 points really this year but when I scan the chains I do look at 5, 10, 15 and 20 point spreads as well as the other larger spreads looking for best premium and returns given the strikes. It is a teade-off. Wider strikes require more margin but have more premium in most cases and therefore you would do less contracts. So for $100,000 it is either 100 10-point spreads or 20 50-point spreads but the analysis is still the same. Wider spreads do allow you to go further OTM since the purchased option costs much less. It is a trade-off that you have to analyze.
One hedge fund manager I chat with does 100 point spreads to go really far OTM but is managing a lot of money so the volume is not a problem. So he may do 1150/1050 let's say. It is really up to you which approach you prefer.
One hedge fund manager I chat with does 100 point spreads to go really far OTM but is managing a lot of money so the volume is not a problem. So he may do 1150/1050 let's say. It is really up to you which approach you prefer.
Cody:
You pretty much nailed one of the trade-off issues I was discussing you need to analyze when doing spreads. Wider spreads may have more premium but adjustments are harder so you do need to go further OTM to really avoid adjustments as much as possible. It all comes down to risk/reward trade-offs.
Honestly just like that book, Everything I Need to Know I Learned In Kindergarten(?), you could say the same for Risk/Reward analysis. Every decision is really a analysis of the risk and reward, pro and con, etc...
You pretty much nailed one of the trade-off issues I was discussing you need to analyze when doing spreads. Wider spreads may have more premium but adjustments are harder so you do need to go further OTM to really avoid adjustments as much as possible. It all comes down to risk/reward trade-offs.
Honestly just like that book, Everything I Need to Know I Learned In Kindergarten(?), you could say the same for Risk/Reward analysis. Every decision is really a analysis of the risk and reward, pro and con, etc...
I do not think 1236 is far fetched really, I just feel that without an unknown catalyst we do not have the negative energy to reach there at this point. If we do have a set back, I think it could dip to the 1245-ish breakout area and it will find a home there if it does and most likely push back higher. We are going to be very flat this week it seems so far....