SPX Credit Spread Trader

It has seemed this year that whenever there is some sort of big announcement of some kind (Fed, unemployment, etc.) that the more of a big deal is made of it beforehand, the more it feels like "good news is bad news and bad news is bad news".

With the Fed announcement out of the way I will be looking to close out my Aug positions and roll into some Sep positions (diagonals and FOTM credit spreads). I really like the look of Sailings 3 different diagonal spreads but I need to free up some margin before doing something like that.
 
Quote from Sailing:

Scoobie,

Take a graphical analysis look at these three diagonals:

-10 Sept 1225p
+10 Oct 1200p

-5 Sept 1275p
+5 Oct 1260p

-10 Sept 1350c
+10 Oct 1375c

Then tell me what you think. The idea of selling an ATM diagonal came from this months OptionTraderMagazine, so we're experimenting here a little.

Selling ATM puts is bringing in lots of premium should the market stay or go up slightly. And having half the position helps offset downside risk as the lower diagonal increases in value.

Tell me you thoughts...
M~
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The ATM put diagonal does seem counterintuitive but does seem to work.

With the lower end puts you are a little limited with Oct strike choices so you are looking for the market to go no lower than roughly 55-60 points (depends on vol of course) by Sep expiration.

I played with changing the 1275 put on the ATM diagonal to 1280. This gives the overall position a little more profit with an upward movement. I will have to give this one more thought but I do like the looks of it.

On the call side, I'm more inclined to think we would end up closer to 1325 than 1350 by Sep expiration if the market makes an upward swing. That being said, I'm not sure I would like to be short the Sep 1325, have the market rally, suck some more vol out of the market and pull in my breakeven that much more. I think going with the 1350/1375 seems to make more sense.
 
Quote from scoobie27:

Murray, Will analyse them and hopefully have an answer tomorrow (Wed)

Cheers
Scoobie
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Tried to graphically analyse the diagonals on IB Portfolio Analytics but don't know how to use it properly. So I'll just
have to picture it in my head as I normally do.

The 1275/1260 diagonal increases the range in which the set 3 of diagonals can profit. If SPX expires around 1275 (preferred)
to ~ 1300, the ATM diagonal will provide a reasonable profit.

If SPX settles below 1275 ~ towards 1225, the 1275/1260 losses of the 1275 should be limited due to increase in vix, thus helping 1260oct put. 1200PUT will provide profit as well (numbers below)
The 1225/1200 diagonal should provide the majority of the profit.

If SPX heads towards 1350/1375 diagonal, profit to the set of 3 diagonals will come from mainly the call diagonal.
It won't be much, this is when the 3 diagonals as a group will return around 1-2%

So good profit range from 1350 to 1225


Assume SPX end at these prices

SCENARIO 1
SPX ~1275 at Sep exp
sep1275 = 0pts
oct 1260 ~ 15pts (spx is currently 1280, so ill use Sep 1265 as a ballpark figure) Could be higher due to increased vix

Other 2 diagonals should have a small loss or even a small profit to add to group profit. Overal profitable

SCENARIO 2

SPX ~ 1240 at Sep exp
SEP 1275 - 35pts
OCT 1260 ~31pts (spx currently 1280 so using Sep 1300 for balll park figure) or higher due to increased VIX

call diagonal - small loss

sep1225 -0 pts
oct1200 PUT - 9 pts (spx currently 1280 so using sep 1240 for ballpark figure) higher due to vix

Whew, my heads all over the place analysing this so feel free to flame.
 
Analysis with TOS:

on 8/22, be at 1240/1310, max profit at 1280 is $1500.

At expiration, break even below 1295, max profit is $8000 at 1225.

Assuming current votal, of course.
 
Note: if you increase the 1260/1275 put calendar to 10, you increase the max profit at expiration to $10,000 at 1275. So it depends on whether you are neutral or somewhat bearish.
 
wow we must be on the same page...I looked at that this am thinking it may be a good place to put some money...not so much as a hedge but a directional play.

What I can not figure out is do they have options? on the TOS page I'm showing some sort of options but with no volume, and the price's don't correspond so must be some kind of ratio. anyone look at that?

edit...directed to Crucis comment on SDS
 
Quote from RichardRimes:

comment on SDS: I looked at that this am thinking it may be a good place to put some money...not so much as a hedge but a directional play.
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Why not short SPY instead. Stick with the ETF that has better liquidity.

Mark
 
Quote from RichardRimes:

wow we must be on the same page...I looked at that this am thinking it may be a good place to put some money...not so much as a hedge but a directional play.

What I can not figure out is do they have options? on the TOS page I'm showing some sort of options but with no volume, and the price's don't correspond so must be some kind of ratio. anyone look at that?

edit...directed to Crucis comment on SDS
More...

OX shows no options---very little data actually. All I know is that it moves 2:1 with SPX (XSP) and inversly.
 
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