SPX Credit Spread Trader

Quick glance shows the RUT hitting up against resistance near 715 or so drawing a trendline from the current high, the August '05 high and the December '04 high.

On the downside there is support above 640 when connecting the Oct and April lows of this year and the low in August 04.

I think the FEB puts are quite safe given the distance and the long-term support above those levels. The calls are closer to the money but hitting some long-term overhead resistance on any more upside moves. If it breaks through it will most likely pull back before resuming any uptrend. All of this means wasted time and theta. You are in new highs not seen ever or at least going back more than 5 years so RUT is in an upward long-term channel. It may continue to rise while bouncing in that channel which makes theta worok for you.

Watch for any breakouts to the upside and then monitor closely.

Phil

Quote from daved275:

Heather and Coach,

I have the Feb. 750/760 calls and the 640/630 puts for RUT. But, as Donna said, always have your adjustments ready just in case.

DAVE
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Thanks coach
Am beggining to feel better.Had a good lunch with friends.All i have to do is wait for uncle theta to work the magic.I have a good mind to implement the Prego fly but i also have other well known repair strategies like below.

For example, in a bull put scenario

*close the short put and turn the Bull Put into a put position
*close the entire position once key support has been penetrated
before our position is penetrated
*close our Bull Put position and roll over
*close our Bull Put position and open a new bear call position
*close our position and accept the losses
*do nothing if we feel that the market is getting weak (this is our last option).

Dave, i feel especially good to find someone else in the same strikes.

Donna,thanks for your comments.
 
Ok I am lost here again, the RUT is li ke 719, where are you getting the 1320 and 1330 strikes? That is why I initially thought it was the SPX, but you say you have similar strikes to Dave who used the index numbers I am seeing...

Help, I am as confused as Jessica Alba reading my 15th letter to her in a week!

Quote from Heatheranderson:

Coach
I just entered RUT Feb 1320/1330 credit spread for $.50 for 10 contracts. I am curious to know your opinion.Its my first big trade and i am kind of feeling wierd.I guess you get confidence as you go along and the trick is not to get too confident, right?.

thanks
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my favorite blond joke...what do you call a redhead between two blonds???....an interpreter:D:D

so as an interpreter...Heather WAS looking to do a spx spread but actually did a RUT spread...then had a little too much wine with lunch:eek:
Quote from optioncoach:

Ok I am lost here again, the RUT is li ke 719, where are you getting the 1320 and 1330 strikes? That is why I initially thought it was the SPX, but you say you have similar strikes to Dave who used the index numbers I am seeing...

Help, I am as confused as Jessica Alba reading my 15th letter to her in a week!
More...
 
Ok I got ya..... too much GOOG combo conversions going on today to think like a redhead. Having my own blonde moments today too LOL.



Quote from DonnaV:

my favorite blond joke...what do you call a redhead between two blonds???....an interpreter:D:D

so as an interpreter...Heather WAS looking to do a spx spread but actually did a RUT spread...then had a little too much wine with lunch:eek:
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I see where i am going wrong.I have put on 2 trades, one on RUT and one on SPX.I got filled on RUT this morning (short 750/long 760) for $0.5 and i am still waiting for the SPX to get filled.
gosh! i have heard that emotions make you see things out of balance, but to experience it like this is somethin else.

And common guys, dont make a blond joke out of this. It can happen to everyone, when they are this nervous.coach, please back me here.

thanks
 
It was just Donna's way of indoctrinating you to our little group ;)

We are your support group so come in and say hi and say "Hi my name is Heather (Hi HEATHER!) and I am a spread-aholic.
 
Just curious coach. You put a lot of focus on SPX. I was wondering how much of your capital you use for SPX spreads. I assume that you make a signifacant amount of trades in other stocks/etfs as well?
 
I put anywhere from 30 - 50% of my portfolio into credit spreads. It is a risk management approach so that I will not ever blow up my whole account. Also the returns on even 40% of your capital can produce nice returns for your whole portfolio, but it works the other way as well :(.

On the flip side up to 70% or so of the portoflio is invested in my other little specialty, Closed-end Funds. I invest in a diversified pool of CEFs which pay dividends monthly and invest in stocks, bonds, preferreds, convertibles, REITS, treasuries, MSBs, international issues, private placements, floating loans, etc.... I diversify away the share price risk and focus on an average 7% yield. SO basically most of the cash backing up the spreads is earning a nice 7% yield.

I keep some in cash to be there for adjustments on spread positions and the remaining portions I use for other option trades as they come up. Like now I am looking at short straddle plays/conversions into FLYs thatr riskarb has discussed, as well as small directional bets on the indexes separate from the spreads.

And starting last Fall I moved a small portion of the account into a futures account (Tradestation) and have been daytrading the ES and ER2 as well as studying daytrading SPY (indexes are what I stick with).

And if my head is not exploding I put the remaining human capital I have here ;)


Quote from Cache Landing:

Just curious coach. You put a lot of focus on SPX. I was wondering how much of your capital you use for SPX spreads. I assume that you make a signifacant amount of trades in other stocks/etfs as well?
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Hi,

i have a question about writing SPX Options.
Yesterday i wanted to sell a OTM-CALL (Feb) till i realized what a gigantic margin is required for this. So it seems to me that it is almost impossible to get a return of over 10% p.a. with such a strategy, because of those astronomic margin requirements. It just seems not to be very profitable to get for example 500$ premium on a 200.000$ margin.

Now what I dont understand: there are several CTAs out there that trade exactly this strategy (writing SPX OTM-options), but some of them have a really outstanding performance of more than 50% p.a. . For example "ACE Investments Strategists-Stock Index Premium Collection", with its president and advisor Yu-Dee Chang. Since 2001, he had an annualized return of 65,81%. How is this possible, if the return I would get on my margin by selling SPX-options is so small. What do the CTAs make different ? How can they achieve those outstanding results ?

I hope somebody can help me.

CALLumbus
 
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