Something didn't seem quite right to me and as I was going through this again I realized that I had made a BIG mistake when analyzing this trade. A run like the one in OCT-NOV would have resulted in a LARGE loss if held to expiry. My dates were off on the IV. The run resulted in a drop of 3-4% not an increase. An IV drop that large would result in a significant loss (to the tune of up to 50%). Your 5 shorts would have lost $7500 or so, while the 10 longs would only be worth $3,500-$4,500. IMO, it's pretty risky to assume that there will be an IV increase, when historically the opposite is true. (IV increases when underlying drops, IV drops when underlying increases)
SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Something didn't seem quite right to me and as I was going through this again I realized that I had made a BIG mistake when analyzing this trade. A run like the one in OCT-NOV would have resulted in a LARGE loss if held to expiry. My dates were off on the IV. The run resulted in a drop of 3-4% not an increase. An IV drop that large would result in a significant loss (to the tune of up to 50%). Your 5 shorts would have lost $7500 or so, while the 10 longs would only be worth $3,500-$4,500. IMO, it's pretty risky to assume that there will be an IV increase, when historically the opposite is true. (IV increases when underlying drops, IV drops when underlying increases)
Coach,
From time to time I hear that it's the S&P futures that control the cash index (SPX) and when hedge funds want to move SPX they manipulate the futures. Would you be able to shed some light on this topic?
More specifically, if it's the futures that dictate the cash index's behavior, shouldn't we really be charting the futures for TA? For example, SPX made a higher high recently but S&P futures did not -- that's quite bearish.
From time to time I hear that it's the S&P futures that control the cash index (SPX) and when hedge funds want to move SPX they manipulate the futures. Would you be able to shed some light on this topic?
More specifically, if it's the futures that dictate the cash index's behavior, shouldn't we really be charting the futures for TA? For example, SPX made a higher high recently but S&P futures did not -- that's quite bearish.
My opinion is that the futures do not move the cash index since the cash index is the derived from the prices of 500 stocks in that index. I cannot see how pushing futures higher would push all 500 stocks higher on its own. The futres are traded heavily and are often referred to as a leading indicator but if the premium of the futures to the cash index gets out of whack it will be arbitraged back to normal faster than you can imagine.
So I do not feel that the S&P futures are the leash to the SPX dog. S&P futures may lead the SPX in many ways but arbitage would lead me to believe that the premium of the futures over the cash index would stay within some expected range taking into account cost of carry, time to expiration, etc...
I am just giving my little ol opinion and would welcome another viewpoint backed by a source.
As for the futures not making a higher high, they did before the SPX index did. Reason is that the traders expected higher movement and went long the futures pushing them higher. Unless ALL of those same future traders also do program trading and go long the 500 stocks, I cannot agree that the futures manipulate the cash index. Some traders program trade this way with the futures I am sure but not in the way you described I feel.
So I do not feel that the S&P futures are the leash to the SPX dog. S&P futures may lead the SPX in many ways but arbitage would lead me to believe that the premium of the futures over the cash index would stay within some expected range taking into account cost of carry, time to expiration, etc...
I am just giving my little ol opinion and would welcome another viewpoint backed by a source.
As for the futures not making a higher high, they did before the SPX index did. Reason is that the traders expected higher movement and went long the futures pushing them higher. Unless ALL of those same future traders also do program trading and go long the 500 stocks, I cannot agree that the futures manipulate the cash index. Some traders program trade this way with the futures I am sure but not in the way you described I feel.
Couldn't get filled on the put side today, MM's wouldn't surrender even with .10 under the mid. Hard to get filled FOTM with under 30 days to expiration but I'll keep trying. The mids collapsed at the end of the day so no getting filled after hours either. Try try again tomorrow if it is a down day.
ryan
ryan
In theory yes, but we were looking at these solely from the standpoint of trading the SPX where huge cross-month skews/blowouts are rare or minor between months- i.e. whatever skew exists at the time of the trade will not explode like a normal chain where APR has earnings announcement for GOOG and MAY is lower vols.
Hey Ryan, SEGV is a market maker so blame him for not getting filled today
Hey Ryan, SEGV is a market maker so blame him for not getting filled today
I even dropped down enough to give up 0.15, still nothing.
