SPX Credit Spread Trader

andysmith · Dec 15, 2005

Coach,
THis is a great post. All readers should print it out and put it next to their computer.

Quote from optioncoach:

Picon:

Way to go. It is a great thing to take your profit today and sleep easy knowing you made good trades, partial hedges and/or adjustments and walked away with quite a nice profit. Congrats and review what happened this month and use it as something to improve your approach for the next month. Always move forward.

ryank · Dec 16, 2005

S&P 500 futures are up pretty good (5.50) with 30 minutes to go to the opening bell. This would make me think the SET today will be up a pretty good amount but we will see.

ryan

El OchoCinco · Dec 16, 2005

Looks like my straddle might be profitable this morning.... waiting for the SET

...

Quote from optioncoach:

OK grabbed the DEC SPX DEC straddle for $6.20. I only did 1 for testing since $620 is not a lot to risk since the SET will not be exactly at 1270 so the loss will not be the full amount. My money, your education.....

ryank · Dec 16, 2005

To revisit a recent topic:

The ATM straddle for Jan is about 33. So does this mean the MMs are expecting the SPX to be between about 1240 and 1305 at Jan expiration?

I am looking for Jan positions and this information on the ATM straddle is new to me and I'm trying to see how best to use it. From what others have posted, this is to be used as a rough tool to get a gauge of the market.

Right now I am looking at put spreads only. I am looking at 1195/1205 or possibly 1200/1210. I tried shaving .05 off the mid of the 11/95/1205 but couldn't get filled. Premium isn't where I like it to be yet today but it is still early.

ryan

El OchoCinco · Dec 16, 2005

My view is that the MMs are pricing the straddle with an expectation that based on today's volatility estimates, the SPX will trade in a range approximately of 33 points aboe and below the ATM strike. Look at it is a sort of estimate of the distribution of index prices from now until expiration. However the market maker has the luxury of revising those figures minute by minute as the index moves so it could get bigger or smaller. Therefore, you use it as a general guide but do not set up any short strikes close to the outer edges of that straddle.

One suggestion I made is to doible the value of the straddle as a quick rule to find a starting point for stirke selection. So if the straddle is $33, start looking at strikes 66 points OTM and then analyze the risk reward of the premium and also use TA to analyze the index.

Quote from ryank:

To revisit a recent topic:

The ATM straddle for Jan is about 33. So does this mean the MMs are expecting the SPX to be between about 1240 and 1305 at Jan expiration?

I am looking for Jan positions and this information on the ATM straddle is new to me and I'm trying to see how best to use it. From what others have posted, this is to be used as a rough tool to get a gauge of the market.

Right now I am looking at put spreads only. I am looking at 1195/1205 or possibly 1200/1210. I tried shaving .05 off the mid of the 11/95/1205 but couldn't get filled. Premium isn't where I like it to be yet today but it is still early.

ryan

ryank · Dec 16, 2005

Quote from optioncoach:

One suggestion I made is to doible the value of the straddle as a quick rule to find a starting point for stirke selection. So if the straddle is $33, start looking at strikes 66 points OTM and then analyze the risk reward of the premium and also use TA to analyze the index.

Funny thing, the 66 points hits about where my other criteria are pointing me. Probably a bad sign, need to drop my short put strike another 5-10

piccon · Dec 16, 2005

What strike do you choose 1275 or 1270?

At what specific time do you take this measure?

Do you take the PUT and the Call and then add it up? (long Straddle definition)

Please answer.

Quote from optioncoach:

My view is that the MMs are pricing the straddle with an expectation that based on today's volatility estimates, the SPX will trade in a range approximately of 33 points aboe and below the ATM strike. Look at it is a sort of estimate of the distribution of index prices from now until expiration. However the market maker has the luxury of revising those figures minute by minute as the index moves so it could get bigger or smaller. Therefore, you use it as a general guide but do not set up any short strikes close to the outer edges of that straddle.

One suggestion I made is to doible the value of the straddle as a quick rule to find a starting point for stirke selection. So if the straddle is $33, start looking at strikes 66 points OTM and then analyze the risk reward of the premium and also use TA to analyze the index.

piccon · Dec 16, 2005

Don't only count on this when selecting your short strikes . You need to consider Fibonacci Retracement/Expansion, Moving average 50,20 200. Price movement of the last month and also market direction.

MHO

Quote from ryank:

Funny thing, the 66 points hits about where my other criteria are pointing me. Probably a bad sign, need to drop my short put strike another 5-10

ryank · Dec 16, 2005

Quote from piccon:

Don't only count on this when selecting your short strikes . You need to consider Fibonacci Retracement/Expansion, Moving average 50,20 200. Price movement of the last month and also market direction.

MHO

I use several criteria to select a strike to be short at. I generally like to look at support/resistance areas, trend lines, +/- 6% of current SPX level and delta of 10-12 and see what the premiums are like at those various strikes and then make my decision from there. Now I will also add the ATM straddle x 2.

ryan

riskarb · Dec 16, 2005

Quote from ryank:

I use several criteria to select a strike to be short at. I generally like to look at support/resistance areas, trend lines, +/- 6% of current SPX level and delta of 10-12 and see what the premiums are like at those various strikes and then make my decision from there. Now I will also add the ATM straddle x 2.

ryan

The "point to double" on the atm straddle is good to know if you were to consider buying the atm straddle as an early-hedge into the wing strikes. At least the hedge would score a double.