SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
That does it.... I'm canceling my RUT order...thought I might try an Apr/May 720P cal and even offered them a nickel
I'm wondering about doing a short straddle instead of an IC spread.
With the SPX you could take in about 40 points total by selling the ATM call/put one month out. If the index moves down/up 40 points you simply cover one side and let the other side expire.
Is this a decent strategy or too risky compared to the IC?
With the SPX you could take in about 40 points total by selling the ATM call/put one month out. If the index moves down/up 40 points you simply cover one side and let the other side expire.
Is this a decent strategy or too risky compared to the IC?
I think it can be a good strategy as long as you can handle the margin (according to OX, a 1 lot has a margin of $35,780 and you bring in a credit of $3,740) AND you keep on top of your position and be ready to make adjustments as needed. There is another thread on ET that does a similar thing on equities (I believe Coach is a regular poster there, I can't remember the name of the thread).
ryan
This is a valid strategy, however the risk is substantial. If a "black swan" event were to occur and the SPX were to gap up/down significantly, you could lose your account if you had a sufficiently large position. As you assess the risks, I don't think you can ignore this possibility. Since it could be a fatal event to your trading account, you really need to think through accepting that risk.
I am sure that everyone who actively trades IC's gets frustrated at spending the big $ it takes to buy the long side of each of the call and put spreads; I simply regard this as insurance (albeit expensive insurance) against being taken out of the game and having to go back to a real job.
Vandelay, I like your idea. A strangle can be bought to hedge the sold straddle. The margin requirement will be lower. You can buy a JUL OTM strangle . Every month you could sell the straddle till July. You could buy back the straddle in the expiration week to reduce the risk. Any thoughts on this.
The thing about a short straddle v. the Iron Condor is that I go much further out of the money than the short straddle range. In fact I advocate going out at least 2x the straddle price distribution to look at OTM strikes. Also short straddles are more susceptible to changes in IV than a spread is while both have the delta gamma risks.
The margin for short straddles is HUGE! For every straddle I could do about 30 - 40 spreads. Although the credit is less, I can be a lot further OTM so the trade off for less credit is more cushion.
DOing a short straddle in certain circumstances is up to you. For example, I sold the 1275 MAR straddle last week for $19.50 to take advantage of 1-week time decay. But to do it consistently can lead to much larger losses than doing conservative spreads.
The margin for short straddles is HUGE! For every straddle I could do about 30 - 40 spreads. Although the credit is less, I can be a lot further OTM so the trade off for less credit is more cushion.
DOing a short straddle in certain circumstances is up to you. For example, I sold the 1275 MAR straddle last week for $19.50 to take advantage of 1-week time decay. But to do it consistently can lead to much larger losses than doing conservative spreads.