SPX Credit Spread Trader

[andysmith]

Yes, but there are distinct advantages to using futures to hedge an upward move in the market whereas it's better to use SPY puts to hedge a downward move... because of the way VIX behaves in an upward versus downward market and because of put IV skew...

Quote from optioncoach:

Well the futures can be used in either up OR down emergency situations where a large sudden move occurs. It is a backstop measure

 

[El OchoCinco]

If we are talking about a Black Swan jump or huge surge higher out of nowhere, nothing will hedge better than futures for that tremendous move. As I said this is an Emergency measure and long puts will not work as well as the futures in my opinion. So up or down, if the market explodes, I feel that slapping on a futures position will hedge and allow you to get out with minor damage.

The puts work for partial hedges. As would calls. A moderate move higher would not warrant use of futures because if market suddenly reverses you now could have a large loss.

Futures should only be used as an emergency brake

 

[Sailing]

Back from the Mountains.... and catching up on the reading.

Just a side note.... skiing with Donna at Copper Mountain was a delight. She is a great skiier! It was a delight to meet and spend a day chatting shop with you. Thanks Donna.

( I won't post your pic just yet... may need to use it for leverage later) Donna puts JA to shame on the mountain.


Just a quick note on VIX options as a hedge...
Remember coach's diagonal position.... no hedge needed... no VIX costs.

As coach pointed out... as of his last post, a nice return for four weeks, without having to worry about a hedge or black-swan event.


Sure miss those mountains.....

 

[El OchoCinco]

Well the point of the VIX hedge is to hedge the side that gets hurt when VIX increases and that is on a severe drop. On a rise in the index VIX will stay flat or fall slightly so a VIX hedge will not work. Only a Black Swan event will cause the VIX to spike and so potentially the VIX calls could help hedge. Who knows lol....

 

[burrben]

Coach,
Is your general feeling to wait until after earnings from the major's before putting on May positions, or start putting them on now?

sd

Quote from optioncoach:

Well the futures can be used in either up OR down emergency situations where a large sudden move occurs. It is a backstop measure

 

[rdemyan]

Coach:

Could you walk me through a scenario of a black swan event where you then purchase futures. I think we have to assume that you purchase the futures after the event, so haven't you then missed the major move down just as with options. I don't know very much at all about futures, so I guess I'm not understanding how this would work. Why would it work better than purchasing a long put?

A hypothetical analysis with made up numbers would help me to see how you anticipate using futures in a black swan event.

Thanks.

Quote from optioncoach:

If we are talking about a Black Swan jump or huge surge higher out of nowhere, nothing will hedge better than futures for that tremendous move. As I said this is an Emergency measure and long puts will not work as well as the futures in my opinion. So up or down, if the market explodes, I feel that slapping on a futures position will hedge and allow you to get out with minor damage.

The puts work for partial hedges. As would calls. A moderate move higher would not warrant use of futures because if market suddenly reverses you now could have a large loss.

Futures should only be used as an emergency brake

 

[El OchoCinco]

I already have my MAY position. I re-listed my positions a page or two back. I put the word COCONUT in there so you can search it real easy.

Quote from skdoyle1:

Coach,
Is your general feeling to wait until after earnings from the major's before putting on May positions, or start putting them on now?

sd

 

[El OchoCinco]

BUMP UP of POSITIONS

MAY POSITIONS

-400 SPX MAY 1215/1225 Put Spreads @ $0.35

Credit = $14,000
Risk = $386,000
Return = 3.62%

Long 100 VIX MAY 20.00 Calls @ $0.20
Cost = $2,000


APRIL POSITIONS

SPX CALL DIAGONAL SPREAD (OPEN):

- 8 SPX APR 1340 Calls @ $4.70
+ 10 SPX MAY 1375 Calls @ $3.10

Net Credit = $660

Unrealized profit of about $1,000 for now but gonna let it run and make more off of it if I can.



SPX BULL PUT SPREAD (CLOSED):

- 350 SPX APR 1225/1235 Put Spreads @ $0.35

Net Credit = $12,250

Closed for net credit of $0.15 or $5,250



PUT SPREAD PARTIAL HEDGE (OPEN- and the reaons we are bullish lol):

+ 100 SPY APR 126/125 Put Spreads @ $0.10

Net Debit = $1,000


Search Word = COCONUT

 

[ChrisM]

Quote from optioncoach:

If we are talking about a Black Swan jump or huge surge higher out of nowhere, nothing will hedge better than futures for that tremendous move. As I said this is an Emergency measure and long puts will not work as well as the futures in my opinion. So up or down, if the market explodes, I feel that slapping on a futures position will hedge and allow you to get out with minor damage.

The puts work for partial hedges. As would calls. A moderate move higher would not warrant use of futures because if market suddenly reverses you now could have a large loss.

Futures should only be used as an emergency brake

Phil,

right, however:

as you stated before, in case of black swan we may expect huge volatility spike. Then holding futures position would not be easy. The best protection for future contract is again - option, which might be expensive due to high vola.
As I use futures myself during certain stage of the strategy, I agree that nothing is better. You may cash out your hedge, collecting additional profit at many times, but entry/holding/building up such position properly needs some advanced calculations.

 

[RichardRimes]

Donna Alert...sticking my toe in the May waters BTO 75 May1215P filled for $2.5

Market just can't seem to hold on to positive territory....should have an opportunity to leg into Put (short) side this week or early next given the increased volatility as we come into exp week.