SPX Credit Spread Trader

[yip1997]

Quote from optioncoach:

[B
4. ES Diagonal Put Spread

Sold 20 AUG ES 1225 Puts @ 8.75

Bought 20 SEP ES 1200 Puts @ 11.00

Net Debit = 2.25 or $2,250

VIX = 14.57 [/B]

Coach,

I am interested to see how your diagonal is doing so far.

When the market is moving away from your front month short, I think the diagonal will lose money. That is something we need to consider, and it seems that we don't have a lot of discussion in this matter.

 

[dagnyt]

Quote from yip1997:

Coach,

When the market is moving away from your front month short, I think the diagonal will lose money.

Not true when you limit yourself to doing spreads for a cash credit. But, even small debit spreads don't lose - unless the market move is huge.

The risk in these spreads is a market move that sends your shorts ITM.

Mark

 

[ryank]

Quote from Sailing:

Just a thought....

I don't know where your positions are strike priced at, but we've left on the next month longs and just sold a put against them and converted into a diagonal.

I'm not sure I follow you here. My diagonal is:

STO Aug 1200p $12.00
BTO Sep 1175p $13.60

If I keep the Sep long and sell a Sep put it becomes a spread not a diagonal or am I missing something here?



What has happed is a mixed portfolio of diagonals and spreads.

The diagonals turn into spreads. The expiring spreads turn into new diagonals. The advantage here... is less commissions, only one b/a spread to fight, and nice combination of fixed VEGA vs. floating VEGA.

I see how the diagonal turns into a spread but how does the spread turn into a diagonal with one b/a spread to fight? I'm sure I'm missing something here but can't put my finger on it.

 

[Crucis]

Quote from optioncoach:

Sorry... everytime I repost my positions I leave that same typo in there... I finally changed it

CALLS

I'm not ashamed to say I'm a newbie. Here it was I thought you'd come up with a new strategy.

 

[yip1997]

Quote from dagnyt:

Not true when you limit yourself to doing spreads for a cash credit. But, even small debit spreads don't lose - unless the market move is huge.

The risk in these spreads is a market move that sends your shorts ITM.

Mark

Mark,

If you have a credit diagonal, you are right.

In general, there are two risks involved in a diagonal.

1. Market moving away from your strike.
Your max loss is the debit.

2. Market moving deep in the money.
Your max loss is the strike difference.

A diagonal is a strategy that has a narrower profit range when compared to credit spread.


If you open a diagonal with credit, it means you have to set the strike very close to the current price (compared to a debit diagonal), and you have a higher chance of facing risk #2.

 

[yip1997]

Quote from ryank:
My diagonal is:

STO Aug 1200p $12.00
BTO Sep 1175p $13.60

Your diagonal looks very good to me. where did you open this position? What were the spx and vix?

I am interested to find out where is the best time for diagonal trades.

 

[ryank]

Quote from yip1997:

Your diagonal looks very good to me. where did you open this position? What were the spx and vix?

I am interested to find out where is the best time for diagonal trades.

I opened this on 7/17 with SPX at about 1234 (look at a chart, I really called the short term bottom didn't I )). The VIX was at 18 (after thinking about this more, this level is probably a bit high for putting on a diagonal with current conditions, live and learn). I was looking for the market to move down from there but it has risen more or less since then. We may go lower but not sure we will get all the way to 1200 to maximize my profit on this one.

 

[Prevail]

any diagonal, no matter how far away the short strike can be placed as a credit if you go far enough away on the long side.

2 1-sigma diagonals for a credit is very similar to 1 1-sigma short strangle but the trade is long vega.

Quote from yip1997:

Mark,

If you have a credit diagonal, you are right.

In general, there are two risks involved in a diagonal.

1. Market moving away from your strike.
Your max loss is the debit.

2. Market moving deep in the money.
Your max loss is the strike difference.

A diagonal is a strategy that has a narrower profit range when compared to credit spread.


If you open a diagonal with credit, it means you have to set the strike very close to the current price (compared to a debit diagonal), and you have a higher chance of facing risk #2.

 

[RichardRimes]

Quote from cdowis:

Been looking myself. The only candidate I know is the TNX, but it has no liquidity. The US looks really good for a calendar right now.

would the TLT work?

 

[RichardRimes]

Quote from optioncoach:

Like today's data that inflation is still a concern was any shock lol... Investors have short-term memory and that is what makes it gyrate so much. Huge surge and then strong pull-backs. I think the Fed is going to disappoint a lot of people and 1300 is not a threat next week.

How could the Fed pause when inflation has not shown any signs of backing off .

THIS is the real "conundrum" of the Fed. I believe further increases will actually increase inflation...basically fuel to the fire as businesses will be forced to raise wages and prices to offset increased rates/oil. Its a very delicate balancing act. If the economy is slowing down you just don't want to SLAM on the breaks by another rate increase. Of course this debate will keep the VIX up this week