SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
If you avoid trending months, basing strike selection purely on implied probabilities is a valid approach IMO and not neccessarily restricted to large accounts.
For example, the last 4 months (including this one) have been excellent for probability based (double or pregnant) butterflies or narrow ICs on OEX/XEO:
Settlement values:
November 2005: 574.69
December 2005: 579.08
January 2006: 571.51 (10 point drop on last trading day)
February 2006: 572.24 (current - who knows where it will end up)
I wish I could say the same thing for the weeklies LOL.
The key is small position sizes as has been mentioned so that you can hold your nerve as the underlying meanders and play the probabilities. I don't think anyone would suggest 50 positions as being sensible, not the least of which because that would have you fully committed.
True, there is difficulty in finding non-correlated instruments to gain diversification for this strategy but one is not restricted to employing only the one strategy.
[STATING OBVIOUS - LOOK AWAY NOW IF INTELLIGENCE EASILY INSULTED]
Btw, different people at ToS recommend different approaches. Everyone clearly has different needs and objectives. There is no right way.
[/STATING OBVIOUS]
MoMoney.
For example, the last 4 months (including this one) have been excellent for probability based (double or pregnant) butterflies or narrow ICs on OEX/XEO:
Settlement values:
November 2005: 574.69
December 2005: 579.08
January 2006: 571.51 (10 point drop on last trading day)
February 2006: 572.24 (current - who knows where it will end up)
I wish I could say the same thing for the weeklies LOL.
The key is small position sizes as has been mentioned so that you can hold your nerve as the underlying meanders and play the probabilities. I don't think anyone would suggest 50 positions as being sensible, not the least of which because that would have you fully committed.
True, there is difficulty in finding non-correlated instruments to gain diversification for this strategy but one is not restricted to employing only the one strategy.
[STATING OBVIOUS - LOOK AWAY NOW IF INTELLIGENCE EASILY INSULTED]
Btw, different people at ToS recommend different approaches. Everyone clearly has different needs and objectives. There is no right way.
[/STATING OBVIOUS]
MoMoney.
Cache:
If you trade with volume at ToS (whatever that means
) you can get a good rate. I get $1.25 a contract trading at least 10 contracts each time so no flat fee on top of the per contract price. So if you trade more than 10 contracts per order or spread and do a couple of orders a month, it will not hurt to ask.
If you trade with volume at ToS (whatever that means
) you can get a good rate. I get $1.25 a contract trading at least 10 contracts each time so no flat fee on top of the per contract price. So if you trade more than 10 contracts per order or spread and do a couple of orders a month, it will not hurt to ask.Quote from Cache Landing:
I've never thought of doing this before. Do I have to give up any of their nice little perks for this lower commission. I knew that they let you adopt a different company's commissions but you give up certain things.
Also, I don't really worry about the $2.95/contract except for on my journal thread account. I don't suppose that they would let me get a reduction on the $1.50/contract on bigger orders?I know, I know.... Americans always want something for nothing.
Quote from optioncoach:
Cache:
If you trade with volume at ToS (whatever that means
Thanks
Never pay the stated commission schedule, negotiate....
Quote from Cache Landing:
I've never thought of doing this before. Do I have to give up any of their nice little perks for this lower commission. I knew that they let you adopt a different company's commissions but you give up certain things.
Also, I don't really worry about the $2.95/contract except for on my journal thread account. I don't suppose that they would let me get a reduction on the $1.50/contract on bigger orders?
Donna, what I do is not all that different from what coach is doing. Differences are:
1) I put the hedge on the same time as the main spread. I see this as a tax to play the game.
2) I calculate the type and size of the hedge based on what I am willing to lose when SPX/volatility goes against me. The goal of the hedges are to create "profit zones" and also to cap max losses. Pay attention to the effectiveness of the hedges if a) the market moves against you right away, and b) the market moves against you late in the game, near expiration. A single hedge won't cover both scenarios.
Rinse and repeat.
1) I put the hedge on the same time as the main spread. I see this as a tax to play the game.
2) I calculate the type and size of the hedge based on what I am willing to lose when SPX/volatility goes against me. The goal of the hedges are to create "profit zones" and also to cap max losses. Pay attention to the effectiveness of the hedges if a) the market moves against you right away, and b) the market moves against you late in the game, near expiration. A single hedge won't cover both scenarios.
Rinse and repeat.
thanks Andy...good pt that you may need more than one "hedge"
Some protesters throwing rocks at a Danish embassy in Afghanistan is not going to rock the U.S. economy. It makes sense they are outraged at the cartoons even though their reaction may be considered over the top. However, it still does not affect all the normal patterns of trade and finance that affect the market so it is a non-event. I doubt it should matter since none of it drives the price of stocks. It just reinforces the turmoil that we already know to exist in the region.