SPX Credit Spread Trader

El OchoCinco · Mar 26, 2006

Hi and welcome...

Basically what strikes you choose are a matter of personal choice and a reflection of your own personal risk management style.

No matter the distance the strikes are OTM, general risk management principles still apply. Cut your loss, adjust or hedge quick and get out of the way when needed and always take a small limited loss over a large blow up.

Quote from rallymode:

I agree that they are close but that's the price i pay for getting a $1.5 credit on a $5 spread. This is how i manage my risk compared to the $.7-$.1 credit on a 10/15 point spread.

What i didnt mention before is that 70% of my trades are with call spreads as i've noticed that breakouts to the upside are easier to manage and sometimes i use ES options for my positions instead of the SPX when the spread prices justify it.

Also, by studying the charts i have noticed that it doesnt happen often that the SPX rallies 30 points from a major resistance point(which is usually after a 30-40 point rally already) with no pullback or before some serious time decay has been eaten away allowing me to close the spread nearly breakeven and simply reopen a higher strike one.

On a final note, i have notice that during the past 12 months when the SPX hasnt made any major moves it has tested its 3 month range resistance and support prices about 4-6 times before violating them that translates to to having 4-5 open spreads during that time. And since my risk/reward is 2/1 i can afford to have that 1 loser even without the adjustment that i make.

The OP's strategy is great but like has said many times you need a very tight grip on money management as that position can hit you hard if you dont properly hedge at the right time.

rallymode · Mar 26, 2006

I'd like to keep posting updates on my spreads as time goes by but only if you guys dont feel i am trying to invade your thread. You've had this nice discussion going for a while now.

I just thought since the title is "SPX Credit Spread Trader" i'd post my trades here and maybe someone else can gain from it.

ryank · Mar 26, 2006

Last week my wife got coupons for 2 different wines, Dancing Bull and Black Swan. I think the investment gods are toying with me

ryan

chrdso · Mar 26, 2006

Quote from rallymode:

I'd like to keep posting updates on my spreads as time goes by but only if you guys dont feel i am trying to invade your thread. You've had this nice discussion going for a while now.

I just thought since the title is "SPX Credit Spread Trader" i'd post my trades here and maybe someone else can gain from it.

Hi,

Thanks for sharing your strategy. It would be great to read updates on your trades.

I have used a similar strategy on the XEO (works great when it is rangebound). Definitely better returns that the FOTM spreads on the SPX that I also trade. But, the XEO trades have needed more adjustments.

I think I am more comfortable with FOTM spreads on the SPX, for now.
But, I will go for lower probability, higher yields on the XEO, as I just seem to have a better feel for the XEO (and no SET to worry about).

Do you trade the XEO/OEX?

rallymode · Mar 26, 2006

Quote from chrdso:

Do you trade the XEO/OEX?

I have tried with the OEX and RUT but i find the SPX better when it comes to strike price availability at any given current price point and % distance from current price. Remember, i try to keep my risk/reward at 2/1.

Well, that was over 8 months ago, maybe i should take a look at them again

B5476 · Mar 27, 2006

Quote from rallymode:

I have tried with the OEX and RUT but i find the SPX better when it comes to strike price availability at any given current price point and % distance from current price. Remember, i try to keep my risk/reward at 2/1.

Well, that was over 8 months ago, maybe i should take a look at them again

The market makers on RUT are ruthless. They will extract every ounce of blood from you if you need to adjust your position because of unfavourable market moves. They are not a friendly crew and I refuse to do business with them.

RichardRimes · Mar 27, 2006

Reading several articles that because of GOOG into spx ...this week there will be downside pressure as they rebalance...could that be the catalyst for a fairly strong move to the dowside?thoughts?

El OchoCinco · Mar 27, 2006

I do not have the monopoly on posting trades here so by all means add your own positions to the mix and comments. The point is for all us outcast SPX spread traders to find a place where we can discuss trades, ridicule each other and show pictures of Jessica Alba without shame

Quote from rallymode:

I'd like to keep posting updates on my spreads as time goes by but only if you guys dont feel i am trying to invade your thread. You've had this nice discussion going for a while now.

I just thought since the title is "SPX Credit Spread Trader" i'd post my trades here and maybe someone else can gain from it.

RichardRimes · Mar 27, 2006

Quote from DonnaV:

Reading several articles that because of GOOG into spx ...this week there will be downside pressure as they rebalance...could that be the catalyst for a fairly strong move to the dowside?thoughts?

another guestion...will goog add to the volatility of the spx?

rallymode · Mar 27, 2006

Quote from optioncoach:

show pictures of Jessica Alba without shame

How did i miss that post?

Quote from DonnaV:

another guestion...will goog add to the volatility of the spx?

I am not so sure whether the rebalancing of the S&P funds due to GOOG's addition will have any downward pressure on the index. If any, it will probably be minimal.

On another note, usually when a volatile stock like GOOG gets added to the S&P, the individual stock volatility tend to decrease from there and not the other way around which is due to the fact that it becomes a more largely held stock and anything short of a huge miss or surprise is gradually built into the price.

Also, since GOOG will now have a larger fan base to answer to and definitely more eyes on its financials, its performance may finally start showing more transparency which will also reduce its volatility. All in all, it seems unlikely that GOOG will increase the volatility of the index.

Should that be the case with GOOG, it will certianly please most of us SPX spread junkies.