SPX Credit Spread Trader

[momoneythansens]

Quote from yip1997:

I got all these greeks favor my short-term outlook, and so I opened this trade.

Nothing wrong with that. If in the short-term there is activity that favors your spread then you can opt to take profits accordingly!

However, I understand this position was being used to test the efficacy of multiple rolls. In that case, it's important to understand under what circumstances you are going to get maximum roll credits in consecutive months.

When you roll a short option you are selling a calendar. If you are familiar with calendars then you will know when you will receive maximum premium for them. Essentially, you want to sell a calendar when volatility is high. With respect to moneyness, you want to sell the ATM calendar.

Translating this to your diagonal, it means you want to roll when the underlying is at your short strike. For consecutive months. That is why I say you need to be moderately bullish for the diagonal you have chosen to get the most from your rolls.

Unfortunately, when the underyling is at your short strike, it will most likely not be on the high volatility that is optimal for selling the calendar/rolling. This is the problem inherent in CALL calendars and CALL diagonals.

HTH.

MoMoney.

 

[momoneythansens]

Quote from scoobie27:

I currently only have an AUG/SEP 1240/1210 PUT Diagonal and the delta neutral properties have gone out the window as SPX has moved up and we're at expiry. My diagonal is now looking more like a long PUT outright. The AUG delta gains is so minimal is no longer hedging my SEP delta losses, which is much heftier.

Are you saying if I had a Call Diagonal....lets say 1325/1350, I would not have any losses?

From a roll perspective, if you had a CALL diagonal you would have a better chance of being able to play at least one side of the market.

With your PUT diagonal, it's very possible you could end up being left with a long leg that quietly fades away into nothingness next month!

It's prudent to keep an eye on your front month short leg to see how much hedging potential it has. Once it drops below a certain amount, adjust into a position that provides more hedging power e.g. roll.

As with a butterfly, if you are anywhere near the sweet spot in the last 5 trading days or so, it's time to think hard about closing, rolling etc.

Not specifically directed at you Scoobie but I know folks here prefer absolutes rather than guidelines e.g. when it's Tuesday at 10.48 EST, the short strike is 12.6 points away, Neptune is in line with Venus and there are no butterflies flapping their wings in Guatemala then roll your position. Alas, I know of no absolutes of this nature for this strategy It's multi-multi-faceted.

For some basic guidelines that I've posted before, take a look at the following article from thinkorswim:

http://mediaserver.thinkorswim.com/articles/TPDubDiagArticle.pdf

Good luck.

MoMoney.

 

[yip1997]

Quote from momoneythansens:

Unfortunately, when the underyling is at your short strike, it will most likely not be on the high volatility that is optimal for selling the calendar/rolling. This is the problem inherent in CALL calendars and CALL diagonals.

HTH.

MoMoney.

Mo,

Thanks for your explanation. It really helps. After I opened this trade, I looked at it carefully, and didn't like the return on margin. I don't think I will lose $ on this trade, but i might not get a good return with it.

If call calendars and call diagonals have this unfavorable behavior, why do you like double diagonals? Do you get in both sides in the same time (or same market condition)?

 

[dagnyt]

I learned today from my broker (IB) that there is a problem with carrying diagonals into expiration.

If I DO NOT COVER my short Aug options today, I will NOT be allowed to sell out my long Sept options tomorrow. That's because they consider the Aug shorts as still in existence (even after settlement is calculated) and I cannot carry naked short calls in my IRA account (nor do I have the margin room for naked puts).

Anyone else ever have this poblem?

Mark

 

[Sailing]

Will work on that after the close....

Quote from scoobie27:

No probs. Please please take your time regarding my first post if you're busy. No rush at all. Can reply tomorrow or day after if you like.

IM seriously considering it but currently already have OX and IB

 

[arizonadreamer]

Do you hold or fold?

With the SPX so close to your strike price and with settlement prices unpredictable (It could settle at a much higher price than the SPX is all day), it seems a bit risky to hold short calls through expiration.

Look at what happened to the VIX. It settled at 12.29 yesterday, but until later in the day, the VIX never hit that price. Those buying 12.5 puts at .05 Tuesday more than quadrupled their money.

Good luck.

AZD

Quote from Sailing:

The Aug/Sept Double Diagonal Update:

Well.. gone sailing today, finished dead last..... only to come home to the market EXTENDING itself for a third consecutive day.

This will be the first Double Diagonal experience for us to push the envelope.... the short

Refresher:

Original Positions (on attached graphic)
Aug 1225p/Sept 1200p
Aug 1300c/Sept 1325c

Yesterday the puts had broken even... today, they're down $975
Yesterday the calls were up $3200... today, they're up only $2375

The reason I'm bringing up the point... is we're 5 points from our short Aug 1300c.... and the double diagonal is still profitable.. (9.6%), with one day to go. And we're not feeling too much presure ... yet.... although the VIX killed us today. The VIX is at a one-month low... the day before expiration..... not what we want when you're long VEGA.

Here's the scenario.....

If the market closes right at 1300.... we have max profit $4,400, if it continues up (along with set)... 1307 is B.E. There's $2.10 left in the Aug 1300c, with one day to go... and that is the remaining profit to be had in the position (plus a little 1325c minus a little 1200p).... and we have a $7 window of cushion to the upside.... 1307. It kinda feels like we're selling a one day naked 1300c, with a with a little protection to the upside.

So....

Do you HOLD them or FOLD them?
Full graphics available, with P/L if movement goes up or down $10

Appreciate your thoughts with explanations.... we can follow up on this experience after expiration?

This should make for an interesting discussion.

M~

 

[ryank]

Quote from Sailing:

Will work on that after the close....

If you don't mind, maybe give us a peek at what stikes you are looking at for your triple diagonal now that the market has run up. I keep getting too many areas that dip negative in the middle ranges.

 

[El OchoCinco]

DIAGONAL POSITION UPDATE



Sold 135 AUG EW 1315 Calls @ Average Price of 1.83
Credit = ~ $12,402.50

Bought 150 SEP ES 1335 Calls @ 1.45
Debit = $10,875

INITIAL NET CREDIT = $1,527.50


----------->With the run up the past few days I decided to sell the extra 15 AUG EW Calls @ 4.00 for additional credit of $3,000.

NEW NET CREDIT = $4,527.50




My short strike in this diagonal is quite agressive but I still am expecting the rally to taper and for us to enter into the AUG doldrums. If we keep pushing higher, then I am considering rolling the AUG EW to the 1325 SEP ES strike to convert to a credit spread if I see some good resistance.

As of right now, that roll will bring in another $4,000 in premium. That will bring the total credit to over $8,000 but of course I will have a SEP ES credit spread not to far OTM. That will be done only if I feel the market will not push above 1325 and pull back lower so I can close for a profit.

The other option is to close the EW short AUG calls and convert the SEP ES long calls into a long FLY for a net credit.

The other choice is to roll the AUG EW to a SEP EW position at much higher strikes for a nice reverse calendar spread and more premium collected. I would still only do this when I sensed a nice pulback was coming to take advantage of the calls moving lower.

Lots of choices, just gonna watch it right now closely...

 

[El OchoCinco]

Coninuing the line of thought above, I could roll the AUG EW 1315 Call to the SEP EW 1345 Calls for a reverse calendar at a credit of about $9,375.

Then my total credit would be just under $14,000. If the market stayed sideways or moved lower, the calls would shrink in value and so would the spread between them allowing me to close out for a profit. If the market moved significantly higher above 1335, then the spread between the two could lead to a nice profit at expiration of the SEP ES Calls.

If the market hovered around 1335 at SEP ES expiration, I could break even, or take a small loss based on my analysis of the current AUG ES/EW reverse calendars, although this is just a visual proxy to see pricing. If ES moves to 1310 I may roll to the reverse calendar to protect the position.

 

[Sailing]

Coach,

Don't you feel like you have too many options with Diagonals...

Isn't that a beautiful thing...


Still hanging onto 1300calls for now..... in the 1300/1325 Diagonal... thinking about rolling into a credit fly.... bull call... credit spread.... reverse calendar.... broken wing butterfly... unbalanced butterfly... hmmm

Catch the drift.

M~

Quote from optioncoach:

Coninuing the line of thought above, I could roll the AUG EW 1315 Call to the SEP EW 1345 Calls for a reverse calendar at a credit of about $9,375.

Then my total credit would be just under $14,000. If the market stayed sideways or moved lower, the calls would shrink in value and so would the spread between them allowing me to close out for a profit. If the market moved significantly higher above 1335, then the spread between the two could lead to a nice profit at expiration of the SEP ES Calls.

If the market hovered around 1335 at SEP ES expiration, I could break even, or take a small loss based on my analysis of the current AUG ES/EW reverse calendars, although this is just a visual proxy to see pricing. If ES moves to 1310 I may roll to the reverse calendar to protect the position.