SPX Credit Spread Trader

Quote from Drofman:

Now it makes sense. Has this strategy (buy the long and leg into the spread) been covered here? Or any reference you may have? Or would you mind saying something about the strategy.
Sorry if this has been covered and I just missed it.
Thanks, Jack
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Legging in is a viable technique. The risk is that you buy the long position and the market moves against you, minimizing or even eliminating the credit you are aiming for.

For example, you buy the 1215 long, thinking the market will go down slightly. You plan to sell the 1225P, but instead the market rises. This is not theoretical, I've done it plenty of times. The market doesn't even need to move alot, just a decrease in volatility to decrease option prices.

The advantage is you can get a much larger spread. Donna got 1.10 for the same spread I fought 3 days to get 0.65 for. She gained 0.45 over my credit.

Hey, Donna, wanta do my trades? LOL
 
We talked about it earlier in the thread...looking at diff ways to set up these long IC. I had been thinking of trying it out for the last couple of months but it never happened. Riskarb brought up some other ideas of buying a straddle as a hedge and I've looked at that as well. In all honesty I don't think it will prove to be a better way, esp for those of you that arn't tied to their computer (in other words have a life) :p after Feb exp I'll write a report on how I saw the pro's and cons :)
Quote from Drofman:

Now it makes sense. Has this strategy (buy the long and leg into the spread) been covered here? Or any reference you may have? Or would you mind saying something about the strategy.
Sorry if this has been covered and I just missed it.
Thanks, Jack
More...
 
Coach (and others),

I recall this coming up quite some time ago, but why is it you prefer SPX over OEX/XEO? The SPX premiums may be a bit higher but that's because of the SET debacle.... which the XEO does not have.
 
SPX has more strikes deep OTM the choose from, you cannot really go more than 1 or 2 strikes away from ATM on XEO and still get decent premium, or even 3 strikes. SPX I can go 80 points or so OTM. More chocies with SPX and SET is easy to deal with as we have said, get out of the position before expiration so SET is not something to worry about. I have done spreads on XEO occasionally but between SPX and XEO, SPX has way more choices and better OTM distance.

But that is my preference. YOu may find XEO more preferable. But with SPX I at least have XSP and SPY for partial hedges which fits with my system and no need to work out convesions or correlations between XEO and XSP.

Just my opinion only..


Quote from andysmith:

Coach (and others),

I recall this coming up quite some time ago, but why is it you prefer SPX over OEX/XEO? The SPX premiums may be a bit higher but that's because of the SET debacle.... which the XEO does not have.
More...
 
I'm not experienced with the XEO, but I'm curious why you are viewing the comparison between the XEO and SPX in terms of strikes removed from ATM. Why wouldn't percentages be the way to do the comparison. By this I mean 80 points OTM on the SPX is 80/1287 or 6.2% OTM. Why not look at premiums on the XEO that are also 6.2% OTM or thereabouts. On the other hand, if there are less strikes, then it might be harder to find a strike that is 6.2% OTM for the XEO. Is this what you mean?


Quote from optioncoach:

SPX has more strikes deep OTM the choose from, you cannot really go more than 1 or 2 strikes away from ATM on XEO and still get decent premium, or even 3 strikes. SPX I can go 80 points or so OTM. More chocies with SPX and SET is easy to deal with as we have said, get out of the position before expiration so SET is not something to worry about. I have done spreads on XEO occasionally but between SPX and XEO, SPX has way more choices and better OTM distance.

But that is my preference. YOu may find XEO more preferable. But with SPX I at least have XSP and SPY for partial hedges which fits with my system and no need to work out convesions or correlations between XEO and XSP.

Just my opinion only..
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Quote from rdemyan:

I'm not experienced with the XEO, but I'm curious why you are viewing the comparison between the XEO and SPX in terms of strikes removed from ATM. Why wouldn't percentages be the way to do the comparison. By this I mean 80 points OTM on the SPX is 80/1287 or 6.2% OTM. Why not look at premiums on the XEO that are also 6.2% OTM or thereabouts. On the other hand, if there are less strikes, then it might be harder to find a strike that is 6.2% OTM for the XEO. Is this what you mean?
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I took a look at the quotes on XEO, there isn't any premium once you get outside of 2% or so (I was looking at Feb) of the current index price of 584. As I don't follow it I don't know this for sure but I would guess that this is typical.

ryan
 
Quote from ryank:

I took a look at the quotes on XEO, there isn't any premium once you get outside of 2% or so (I was looking at Feb) of the current index price of 584. As I don't follow it I don't know this for sure but I would guess that this is typical.

ryan
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True. I've looked at other indexes also. Only index I've traded with premium OOM 5%+ at 45 days is RUT, but it's Beta is much higher. SPY is not bad, but the premium doesn't go out percentage-wise as far as SPX, but the spreads are narrower.

A little off topic - I understand that you can go much further OOM with credit spreads using options on the underlying futures contracts. I've not looked into it myself.

Has anyone had any experience in that arena?
 
Quote from nlslax:

True. I've looked at other indexes also. Only index I've traded with premium OOM 5%+ at 45 days is RUT, but it's Beta is much higher. SPY is not bad, but the premium doesn't go out percentage-wise as far as SPX, but the spreads are narrower.

A little off topic - I understand that you can go much further OOM with credit spreads using options on the underlying futures contracts. I've not looked into it myself.

Has anyone had any experience in that arena?
More...

Continuing off topic on this holiday-

Learning about futures and options on futures are on my goal list for this year. I've heard of futures and know that the index futures give you some indication of how the markets are going to open but that is the extent of my knowledge. I think that some who have appeared on this board from time to time trade some futures and options on futures. Any good books for a beginner to read?

ryan
 
Actually, I put on a RUT bull put for January that when executed was 9.3%% OTM from RUT price to the short strike. The trade was placed 8 weeks prior to January expiration and I got $0.65. Normally, I don't like the RUT because the market makers are much more tight-fisted than the SPX makers. But this opportunity looked too good to pass up. Of course, now my short strike on this is almost 12.5% OTM.



Quote from nlslax:

True. I've looked at other indexes also. Only index I've traded with premium OOM 5%+ at 45 days is RUT, but it's Beta is much higher. SPY is not bad, but the premium doesn't go out percentage-wise as far as SPX, but the spreads are narrower.

A little off topic - I understand that you can go much further OOM with credit spreads using options on the underlying futures contracts. I've not looked into it myself.

Has anyone had any experience in that arena?
More...
 
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