SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
That's interesting, I've usually gotten better fills with SPY. In any case, I much prefer SPX for low commiss but I like to put in a OCO order and if I can get filled in XSP or SPY at a good enough price to make up for the commiss, then I take it.
Coach brought this up a little while ago. You can go here to read what he had to say:
http://www.elitetrader.com/vb/showthread.php?s=&threadid=49586&perpage=6&pagenumber=540
ryan
There's a lot of activity on this thread today.
Doesn't anybody work for a living any more??
Am I the only one still working for the man.
I was thinking about what our economy would be like if most people traded options for a living. Once I retire I know I'll be trading full time, because there won't be any S.S.
Oh yeah, and I want to live high on the hog, like Donna
Doesn't anybody work for a living any more??
Am I the only one still working for the man.
I was thinking about what our economy would be like if most people traded options for a living. Once I retire I know I'll be trading full time, because there won't be any S.S.
Oh yeah, and I want to live high on the hog, like Donna
Prego Fly is my nickname for an unbalanced FLY if you will or skip strike FLY. A normal butterfly has equidistant strikes. A FLY with 10 points on one side and 5 points on the other is a skip-strike FLY or, as I call it, a Prego Fly because the risk graph makes the butterfly look pregnant.
What it is with respect to this thread is an adjust to a credit spread when the market is moving severely against you.
Assume you have a 100 1350/1360 bear call spread and the market is exploding out of the box over 1320. To convert the position to a Prego FLY you look at adding 50 1330/1350 bull call spreads, as an example, to convert to a FLY (1330/1350/1360 off balanced FLY).
The huge margin is reduced now to the net debit which is produced when you subtract the credit originally received from the new debit paid to add the 1330/1350 bull call spread. This cost can be high when you are far from expiration but it is significantly lower than the $100,000 margin of the original credit spread (assume the new net debit is $15,000). Now you can also make a ton of money if the index settles around the body of 1350. You also could lose the entire net debit if the market rushes away from the 1350 strike.
THis is a break the glass in case of emergency adjustment which must be considered in great detail. If you expect the market in the example above to keep running past 1320 and move to 1350 or so, then you can make the adjustment and look for profits if the index does hover in the 1350 range. However if you are just concerned about the short strikes, you may want to add some long partial hedges to finance a potential roll-up or closure of the position.
Prego Flys have large costs but which are much less than the margin required. One way to play it is to convert to Prego FLY and then sell more call spreads at higher strikes with the now freed up margin and reduce your net debit as much as possible. Since this is used in emergency situations, it can greatly reduce your risk of major loss and potentially provide a lottery ticket of huge profits should the index land near your short strike.
The further you are out from expiration, the more this may cost you. One way to understand this is to simply play around with different bull call spreads to convert to Prego Fly along the way on paper just to see costs and breakeven points.
You must add a bull call spread that has the same maximum profit as the maximum loss as your credit spread to get a FLY. You can play around with the ratios if you wish and add more or less spreads.
What it is with respect to this thread is an adjust to a credit spread when the market is moving severely against you.
Assume you have a 100 1350/1360 bear call spread and the market is exploding out of the box over 1320. To convert the position to a Prego FLY you look at adding 50 1330/1350 bull call spreads, as an example, to convert to a FLY (1330/1350/1360 off balanced FLY).
The huge margin is reduced now to the net debit which is produced when you subtract the credit originally received from the new debit paid to add the 1330/1350 bull call spread. This cost can be high when you are far from expiration but it is significantly lower than the $100,000 margin of the original credit spread (assume the new net debit is $15,000). Now you can also make a ton of money if the index settles around the body of 1350. You also could lose the entire net debit if the market rushes away from the 1350 strike.
THis is a break the glass in case of emergency adjustment which must be considered in great detail. If you expect the market in the example above to keep running past 1320 and move to 1350 or so, then you can make the adjustment and look for profits if the index does hover in the 1350 range. However if you are just concerned about the short strikes, you may want to add some long partial hedges to finance a potential roll-up or closure of the position.
Prego Flys have large costs but which are much less than the margin required. One way to play it is to convert to Prego FLY and then sell more call spreads at higher strikes with the now freed up margin and reduce your net debit as much as possible. Since this is used in emergency situations, it can greatly reduce your risk of major loss and potentially provide a lottery ticket of huge profits should the index land near your short strike.
The further you are out from expiration, the more this may cost you. One way to understand this is to simply play around with different bull call spreads to convert to Prego Fly along the way on paper just to see costs and breakeven points.
You must add a bull call spread that has the same maximum profit as the maximum loss as your credit spread to get a FLY. You can play around with the ratios if you wish and add more or less spreads.
Quote from rdemyan:
There's a lot of activity on this thread today.
Doesn't anybody work for a living any more??
Am I the only one still working for the man.
I was thinking about what our economy would be like if most people traded options for a living. Once I retire I know I'll be trading full time, because there won't be any S.S.
Oh yeah, and I want to live high on the hog, like Donna
This has been a very busy day on the board, glad to see it.
I run a small (4 person) company, this is my escape and this week I've really needed one. I'd like to trade options full time right now but don't have the coin that Donna or Coach do, we can all dream right
? Maybe if I mortgage the house, sell the wife and kids... nah, that won't work .ryan
Quote from rdemyan:
There's a lot of activity on this thread today.
Doesn't anybody work for a living any more??
Am I the only one still working for the man.
I was thinking about what our economy would be like if most people traded options for a living. Once I retire I know I'll be trading full time, because there won't be any S.S.
Oh yeah, and I want to live high on the hog, like Donna
I still work for the man. I like my "real" occupation but I was having eye problems this week. Just could see myself going into work at all. LOL
[edit] Actually working with a couple partners on starting an IA right now too.Seriously though, I keep my "real" job because it allows my account to grow much faster. I'm doing this for the future, not the present.
One day I want to be able to join Donna on her extreme yacht.