SPX Credit Spread Trader

[El OchoCinco]

Well Murray, I am in with my first diagonal using calls to test the waters (Maybe this will also reverse the market.... ).

SPX at 1306

Sold 8 APR SPX 1340 Calls @ $4.70 ($3,760)

Bought 10 MAY SPX 1375 Calls @ $3.10 ($3,100)

Net Credit = $660
Margin = ~$35,000

Return = Depends. As with any type of calendar it depends on where SPX is at expiration.

One test I ran is if in 20 days, SPX is at 1340. Using the option pricer it showed (theoretically, without b/a spreads) that the 1340 Call would be at $6.95 and the 1375 Call would be at $8.50 for a spread credit (8*10) of $5,560. Adding in $660 credit this would be a 18% return on margin.

I am playing this on the expectation now that we will be somewhat higher over the coming weeks given the bullish breakout. Therefore, instead of selling credit spreads in APR, I chose the diagonal after Murray's discussion to feel it out and test it. If the market stays down in APR, I make money. If it goes up I still make money to an extent (have not tested every strike on the calculator).

I think I might like these as a slightly different way to play price swings along with credit spreads.

 

[piccon]

Coach,

What happened to your XSP133 that you bought for hedging. I still have some 132 but there is no trading on it at all

I am trying to get at least 0.05 cents. I bought it for 0.20 to protect my 1330/1340; I already closed the 1330/1340 for 0.05

Should i wait and see? It's like 14 points to the strike.

Quote from optioncoach:

Well Murray, I am in with my first diagonal using calls to test the waters (Maybe this will also reverse the market.... ).

SPX at 1306

Sold 8 APR SPX 1340 Calls @ $4.70 ($3,760)

Bought 10 MAY SPX 1375 Calls @ $3.10 ($3,100)

Net Credit = $660
Margin = ~$35,000

Return = Depends. As with any type of calendar it depends on where SPX is at expiration.

One test I ran is if in 20 days, SPX is at 1340. Using the option pricer it showed (theoretically, without b/a spreads) that the 1340 Call would be at $6.95 and the 1375 Call would be at $8.50 for a spread credit (8*10) of $5,560. Adding in $660 credit this would be a 18% return on margin.

I am playing this on the expectation now that we will be somewhat higher over the coming weeks given the bullish breakout. Therefore, instead of selling credit spreads in APR, I chose the diagonal after Murray's discussion to feel it out and test it. If the market stays down in APR, I make money. If it goes up I still make money to an extent (have not tested every strike on the calculator).

I think I might like these as a slightly different way to play price swings along with credit spreads.

 

[El OchoCinco]

I closed all my MAR call positions last week or so, thus I have nothing to hedge. I still have the MAR XSP 133 position but with the market 25 points OTM, it will no doubt expire worthless as there is no bid/ask. If it expires today like the SPX then it pretty much is worthless and no MM is going buy it from you for $0.05.

Quote from piccon:

Coach,

What happened to your XSP133 that you bought for hedging. I still have some 132 but there is no trading on it at all

I am trying to get at least 0.05 cents. I bought it for 0.20 to protect my 1330/1340; I already closed the 1330/1340 for 0.05

Should i wait and see? It's like 14 points to the strike.

 

[piccon]

I do have the 132 not 133 it's like 13 points away.

Quote from optioncoach:

I closed all my MAR call positions last week or so, thus I have nothing to hedge. I still have the MAR XSP 133 position but with the market 25 points OTM, it will no doubt expire worthless as there is no bid/ask. If it expires today like the SPX then it pretty much is worthless and no MM is going buy it from you for $0.05.

 

[El OchoCinco]

If it expires today, 13 points is not close enough to have a b/a unfortunately.

Quote from piccon:

I do have the 132 not 133 it's like 13 points away.

 

[Synaptic]

Coach,

I'm in the 1325/1320 MAR .... holding on at this point but I'm wondering how much (if any) decay in the strike values will occur as today wears on ? Or are the MM's really pricing the strikes based on an up SET tommorrow ?

Should I consider selling potentially 1/2 my contracts and leaving the other half to see how SET comes in tommorrow?

 

[El OchoCinco]

What was your credit sell price and what is the current b/a?

 

[ryank]

I downloaded the TOS software this morning. After initially fumbling my way around the analyze page and having to click for help I now am able to work it. This really blows OX away! After I switch in a few weeks I just hope the fills are better and the commissions don't go up. The more I play with the software the more I like it. I can now do my hedge search with the awesome analyze page.

ryan

 

[Synaptic]

2 different accounts averaging about 48 cents for 120 contracts.

Current bid ask is 0 / .45

Quote from optioncoach:

What was your credit sell price and what is the current b/a?

 

[El OchoCinco]

Well today it is hard to tell where we are going to end up. We are at 1310 and may hover here. BUT, there is always a chance of a large SET so my advice is consider getting out at $0.25 of $0.30 if you can and avoid a SET situation that we could be talking about for years as "Avoid the Synaptic SET Scenrio".

Now if you do that, and SET is like 2.00 or so, do not be mad at money left on the table because if you just imagine a wide SET and a $6,000 loss you might feel differently.

Start agressive if you want with $0.25 to close.

Some may disagree with me. If the market dips back to 1305, I think you are safe but it is like allowing Robert Horry to be open for a 3 pointer in the 7th game of the NBA championship when you are up by 2. He will not kill you every time, but when he hits the shot, you lose and that is all that matters. So always defend against it.