SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
The IRON FLY has its own pros and cons and it is not easy quick money if vols drop a bit. We have a FED announcement in two weeks. If the news is bad, vols pick up as SPX drops and you will not have a profit. If the news is good and the market takes off, vols will drop but now your straddle detlas kick in and you might have a small gain or be flat given the wide b/a spreads.
IRON FLYs are not the best position to put on SPX since you could have $1.00 on 4 strikes of bid/ask spreads which could offset most of your gains. My advice is paper trade a comparable SPY or XSP FLY with 10 contracts and see which reacts better. The idea might be good but not for this product or better yet, might be better for the SPY or XSPs where the bid/ask spreads might make it easier to get the fills you need or hedge with SPY stock or other options. IMHO.
IRON FLYs are not the best position to put on SPX since you could have $1.00 on 4 strikes of bid/ask spreads which could offset most of your gains. My advice is paper trade a comparable SPY or XSP FLY with 10 contracts and see which reacts better. The idea might be good but not for this product or better yet, might be better for the SPY or XSPs where the bid/ask spreads might make it easier to get the fills you need or hedge with SPY stock or other options. IMHO.
I must not have made myself clear, I apologize. Currently credit spreads are my bread and butter, and I make a nice monthly income off of trading them, following the risk management guidelines you have set forth which has taken my trading to another level.
But I feel, as a businessman, you need to re-evaluate your postion every so often to ensure you are still on top of your game, and persuing the correct goals. I fully agree that credit spreads can be non-directional, and that the spike in vol can lead to juicer prem and larger ranges, obviously since all we are doing is getting paid to take a probability bet.
But, are there safer or more profitable ways to take advantage of a potentially changing market? For example, you are daytrading the ES, which I cannot do from a time perspective, so my question boils down to, are credit spreads still the optimal trading strategy for income investment without trading on a daily basis in a higher vol market? I'm sure there are a wide variety of options, but I'm just looking for your opinion.
thanks,
burrben.
But I feel, as a businessman, you need to re-evaluate your postion every so often to ensure you are still on top of your game, and persuing the correct goals. I fully agree that credit spreads can be non-directional, and that the spike in vol can lead to juicer prem and larger ranges, obviously since all we are doing is getting paid to take a probability bet.
But, are there safer or more profitable ways to take advantage of a potentially changing market? For example, you are daytrading the ES, which I cannot do from a time perspective, so my question boils down to, are credit spreads still the optimal trading strategy for income investment without trading on a daily basis in a higher vol market? I'm sure there are a wide variety of options, but I'm just looking for your opinion.
thanks,
burrben.
Quote from optioncoach:
The problem is that your question implies that credit spreads are purely non-directional strategies. Bull put spreads can be bullish, neutral to slightly bearish and bear call spreads the opposite. If we are trending higher, which, by the way we have since OCT, you can still make money in a trending market if you trade the other side of the trend.
I do not feel credit spreads are a one-trick pony really. I am trading them in flat, downwards and upwards markets which to me is a month to month outlook. Yes vols have been quite historically low but increasing vols just mean I adjust to the conditions. Maybe stick with puts and take advantage of the skew. If vols spike the credits improve with the expected range of the market. When VIX spiked to 19 or so and the SPX dipped to 1245, I was able to initially grab spreads at 1140/1160. Sure the VIX could have spiked mroe as the market broke through 1200 and I have to deal with those situations.
Now I also daytrade futures and that allows me not be a one trick pony with respect to a strategy overall. So I may not have any JULY positions after next week, but I am still trading daily. So credit spread are fine in any environment but many people here trade other option strategies just to have some nice portfolio divesification. It is a personal preference more than anything
Well the short answer is that credit spreads are not the optimal strategy because it is really an individual preference based on trading style and risk management. I would not say any strategy in a vacuum is optimal per se.
If your question is based on income investment, I have to ask what you mean by that. Do you mean generating monthly returns or actually bringing in income you take out month to month. Because if you have no need to withdraw the money, then income investing can be based on quarterly or annual positions and not on taking in a specific credit month to month. I do not do credit spreads for income specifically, I do them as an investment vehicle and it happens to be a position whose time frame is monthly. Futures is on a daily time-frame.
There is no reason why you cannot do long option positions for income in whatever time frame you choose as long as the strategy matches your investment style and risk management preference. I am not trying to be difficult, it is just it is hard to define an optimal strategy for anything since it all depends on the individual. One trader I know does calendar spreads month to month to generate returns. It is a debit position but he tries to make monthly profits.
So the job for you is to examine your own investment style and see what other strategies in addition to credit spreads fits. For me it was daytrading futures due to my capital, index experience and ability to watch the market daily among other factors. For you, you do not have the time for futures daytrading so you need to find your other niche. I also buy and hold closed end funds to generate monthly income by searching out income funds.
So options month to month, futures day to day and CEFs as long-term holds. Self analysis will help you find which products meet your needs and allow you to diversify your investments better.
If your question is based on income investment, I have to ask what you mean by that. Do you mean generating monthly returns or actually bringing in income you take out month to month. Because if you have no need to withdraw the money, then income investing can be based on quarterly or annual positions and not on taking in a specific credit month to month. I do not do credit spreads for income specifically, I do them as an investment vehicle and it happens to be a position whose time frame is monthly. Futures is on a daily time-frame.
There is no reason why you cannot do long option positions for income in whatever time frame you choose as long as the strategy matches your investment style and risk management preference. I am not trying to be difficult, it is just it is hard to define an optimal strategy for anything since it all depends on the individual. One trader I know does calendar spreads month to month to generate returns. It is a debit position but he tries to make monthly profits.
So the job for you is to examine your own investment style and see what other strategies in addition to credit spreads fits. For me it was daytrading futures due to my capital, index experience and ability to watch the market daily among other factors. For you, you do not have the time for futures daytrading so you need to find your other niche. I also buy and hold closed end funds to generate monthly income by searching out income funds.
So options month to month, futures day to day and CEFs as long-term holds. Self analysis will help you find which products meet your needs and allow you to diversify your investments better.
I don't think IFly's have really been discussed before in this thread...which is primarily abt OTM credit spreads. The recent increase in volatility has prompted some thought as to how we might try to profit from it and IFlys might be one way. I do think coach is right is looking more to the xps or spy to do them...my guess is very difficult to fill without a great deal of slippage (on the spx.)