SPX Credit Spread Trader

[momoneythansens]

Chocolate teaspoons are not neccessarily that negative LOL.

I have no proof of anything. It's largely speculation coupled with some exaggeration for effect

My cursory analysis suggests that a spike in spot VIX to 30 will not neccesarily be reflected by a spike in forward VIX (upon which VIX option prices are determined).

It seems likely that there will be a "sympathy" move but the magnitude and duration are not certain in the slightest and largely dependent on the cause of the black swan event and the proximity to VIX option expiration.

You're right, I cannot definitely say that a spot spike will not move the calls but I can definitely say that a spot spike will "move" the SPX calls/puts - one is derived from the other.

In essence, my sceptisicm regarding the efficacy of VIX options for black swans is borne from the fact that the link between VIX spot and VIX forward is more tenuous than I would like.

I suspect that you and others have arrived at a separate conclusion.

MoMoney.

Quote from optioncoach:

Mo:

Problem is you cannot definitively say that a spike to 30 on the VIX will not move the MAY 15 Calls to something close to intrinsic value. So the usefulness cannot be so negatively described unless you have proof that a spike to 30 in the VIX will not cause any movement at all of significance in MAY 15 calls.

 

[andysmith]

Rookie Rich, good start.

Now if things start turning against you, do you have a plan in place to hedge/adjust/close the positions?

Quote from rsflint:

Hi everyone, got filled with the following today:

MAY SPX
BTO 1360 Call
STO 1350 Call
Credit = $0.65

BTO 1245 Put
STO 1255 Put
Credit = $0.55

Total Credit = $1.20

If all goes well, a 12% return per contract @ $1,000 (not counting commissions). Good luck with your trades.

Rookie Rich

 

[rallymode]

Quote from ryank:

If you have to make 2 or more adjustments you better have a really healthy reserve available to do it with or you could be sunk for a good chunk.

I will have to try this out on a small scale with June positions, I haven't found any May positions that would work right now. You put on your May call position right before April expiration right? Any May put positions yet?

ryan

I think you should reread my original post for the details of my adjustments. Margin on a 5 point spread is hardly the issue here. I dont risk my whole account with 2 adjustments, not even half, in fact my risk is about 5%. So when i am wrong and market moves with no retracement, my strategy will take me out of the market after 2 losing adjustments. I will reenter and earn that 5% back within 2 months when the consolidation period comes. I am speaking off the top of my head here but these numbers sound about right based on 15 months of real experience and another prior 12 months of back testing.

The most important thing is the amount risked per trade that you are comfortable with and increasing the position size as the market starts to move outside the ranges.

My ideal entry is the week between the 5th and 4th Fri before expiry. So yes, a minimum of 4 and max of 5 weeks to expiry. Historically when i enter during that time i am able to obtain close to a perfect 1:3 r/r, if i am late my risk starts to increase with each day that passes as i start giving up credit. Also, dont forget that you MUST enter at the top/bottom of the channel as is seen from my recent trades. Again, that means that you may miss some premium in some months but i am in no rush to lose money.

 

[andysmith]

SPX down 5 points and VIX has barely moved... Why?

[EDIT] OK, it just moved. It's interesting to watch VIX's behavior as SPX breaks below key trend lines and support points. VIX pops as traders buy protection.... it really does capture collective market sentiment...

 

[rallymode]

Quote from rallymode:

I was inspired by maverick and his endless banter about debit spreads, so i decided to add some variety to my boring trading as of late. So i opened the following position a few minutes ago. Yes, you guessed it right - DEBIT SPREADS


20 MAY SPY 130/128 bear put spreads for a $.35 debit.

Here is a position update on this trade. When i placed the spread the SPX was at 1316. 5 minutes after i placed it, the midpoint moved against me to $.30. I was thinking of adding some more but didnt.

Anyway, if a person were to get in for the .30 debit, they would be up 100% right now since the mid point is .60 with the SPX at 1300.

So 17 points move caused the 100%, of course barely any theta was lost. So anyone still thinks this is a slow moving spread?

I need another 5-10 points drop to reach my target. Will keep you updated.

It appears that debit spreads when used on the put side can be pretty profitable for the risk they carry when placed to take advantage of convexity.

 

[El OchoCinco]

Also don't forget that 5 points in the SPX is not really a big deal nor something that would raise any panic or concern. However if the SPX breaks through key support areas and looks bearish, then market sentiment turns negative and expected volatility increases. It is not the little moves that raise or lower volatility, it is the bigger swings.

Quote from andysmith:

SPX down 5 points and VIX has barely moved... Why?

[EDIT] OK, it just moved. It's interesting to watch VIX's behavior as SPX breaks below key trend lines and support points. VIX pops as traders buy protection.... it really does capture collective market sentiment...

 

[rallymode]

Quote from ryank:

Any May put positions yet?

ryank,

I am not looking to open put positions until the SPX gets close to the 200MA which is around 1250 right now. Until that happens i will be playing the call side only.

 

[ryank]

Quote from rallymode:

I think you should reread my original post for the details of my adjustments.

I've been searching for it but haven't found it. Can you point me to it? tia

ryan

 

[andysmith]

It's slow moving...

Quote from rallymode:

Here is a position update on this trade. When i placed the spread the SPX was at 1316. 5 minutes after i placed it, the midpoint moved against me to $.30. I was thinking of adding some more but didnt.

Anyway, if a person were to get in for the .30 debit, they would be up 100% right now since the mid point is .60 with the SPX at 1300.

So 17 points move caused the 100%, of course barely any theta was lost. So anyone still thinks this is a slow moving spread?

I need another 5-10 points drop to reach my target. Will keep you updated.

It appears that debit spreads when used on the put side can be pretty profitable for the risk they carry when placed to take advantage of convexity.

 

[Hybone]

Quote from rallymode:

ryank,

I am not looking to open put positions until the SPX gets close to the 200MA which is around 1250 right now. Until that happens i will be playing the call side only.

I have similar views but my target is closer to the 100.