SPX Credit Spread Trader

[B5476]

Quote from andysmith:

An example:

Say you have $10,000 in an account. Now you put on a 10-pt spread for $1 credit, 10 times (i.e. position size of 10 spreads). Your margin requirement is $10,000. Your credit is $1,000. Your account will be worth $11,000 if the spread expires worthless.

Now say the underlying moves very close to your short strike such that the spread is worth $5 (up from the $1 at the time you sold the spread). You decide to buy back the spread and take a loss. So you buy back all 10 spreads for a debit of $5,000 and close the position. Your account value is now $11,000 - $5,000 = $6,000. You can no longer put on 10x 10-pt spreads for $1 credit... you can put on 6. Had you rolled, you would have been able to roll into another spread with position size of 10.

If you use the entirety of your account to support a position, you are flirting with disaster. You have no reserve and cannot kick in the afterburners to get out of Dodge if the need arises. You should have some reserve buying power to get out of trouble if the need arises.

 

[rallymode]

Quote from osho67:

CBOT has started options on Gold. Premiums look vry nice. Will anybody do credit spreads on these options?

With gold shooting for the moon, i am not sure you can do well with credit spreads consistently. A few highly speculative bets maybe, but other than that you are probably better off sticking with the indices.

Debit spreads would be a much better way to play gold in my opinion. But i wouldnt touch the put side.

 

[momoneythansens]

Quote from gatorplease:

But TOS only trades during daytime hours

Confirmed by Rdemyan a few days ago.

MoMoney.

 

[momoneythansens]

Your point is valid but I think it was just a contrived example to highlight the particular margin implications he was discussing.

You are always allowed to close any existing position regardless of reserve buying power left. Reg-T ensures this.

MoMoney.

Quote from B5476:

If you use the entirety of your account to support a position, you are flirting with disaster. You have no reserve and cannot kick in the afterburners to get out of Dodge if the need arises. You should have some reserve buying power to get out of trouble if the need arises.

 

[cdowis]

Bottom line: Look at your statement. Margin is not re-computed everytime you add and remove a position -- it's computed daily based on settlement prices for that day.

There is no difference between a one step or two step process in the rollover in terms of margin. You don't "loose" margin --it's already lost.

 

[momoneythansens]

I believe Andy was referring to Reg-T margin treatment for option positions.

Quote from cdowis:

Bottom line: Look at your statement. Margin is not re-computed everytime you add and remove a position -- it's computed daily based on settlement prices for that day.

There is no difference between a one step or two step process in the rollover in terms of margin. You don't "loose" margin --it's already lost.

 

[gypsies]

Quote from CashCache:

Another option would be to run TOS on your home computer and then connect to it using Remote Desktop or something like GoToMyPC. This will get you around any port blocking that the Man be be sticking you with.

Just an idea...

I have tried that, and it just doesn't work well at all. I called for support and the tech I spoke with agreed, that it doesn't work with things like Remote Desktop.

 

[andysmith]

If you rolled for a credit (i.e. roll to a future month) then buying power would not be an issue, and you could roll to a new spread with a position size of 10. I don't see how you can do that with a two-step roll...

Quote from momoneythansens:

They are one and the same thing.

Rolling up/down is buying the vertical and selling another vertical (or buying a butterfly/condor).

It doesn't matter if the two trades are done as one or separately.

In your example, buying power would prevent you from rolling.

 

[momoneythansens]

LOL. My mistake, I assumed you you were rolling up/down. However, the same principle applies when rolling to a different month for a credit:

If your account allows you to roll in one step, it will allow you to roll in two steps with the exact same size

[EDIT: Don't take my word for it! - try it out, I'd be glad to be proven wrong]

MoMoney.

Quote from andysmith:

If you rolled for a credit (i.e. roll to a future month) then buying power would not be an issue, and you could roll to a new spread with a position size of 10. I don't see how you can do that with a two-step roll...

 

[momoneythansens]

LOL, since I'm bored, I'll explain the small flaw in logic:

Quote from andysmith:

You can no longer put on 10x 10-pt spreads for $1 credit... you can put on 6.

As the front month spread is now worth $5, let's say the back month spread is $5.50

Take the $6000 in your account after locking in the loss on the front month, add to that $5,500 credit you get from selling the back month spread and you have enough margin to satisfy 10x 10-pt spreads.

This is why I prefer to close a losing spread rather than rolling to a further out month and end up with a position you might not otherwise have put on.

Either way you are locking in the full loss on your front month spread. Any perceived credit for the roll is just the difference between the front and back month spreads but I'm sure that was obvious.

MoMoney.