SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Here are my last four trades for educational purposes. It outlines my entry points and as they relate to the trading range. I go for 20-30 points above market with my short strikes.
As you can see and as i said before, i use the last 3 month trading range and enter my trades using technical analysis. My favorite entry is after Hammers as you can see from the charts. If i dont get a good entry i wait until i do. With short strikes this close perfect entries are imperative to my strategy.
I wasnt very comfortable putting the APR Put spread with the SPX at 10 points above the support line but given the strong reversal the day before, i thought the risk was justfied.
From a technical standpoint, it is likely that we retest the 50 MA over the next few sessions, thats why i was curious earlier regarding optioncoach's entry into put spreads. Also, notice the negative divergence on the RSI. At every new SPX high, the RSI has been lower, so if i had to play the guess game here i'd say it's likely we go lower from here.
As you can see and as i said before, i use the last 3 month trading range and enter my trades using technical analysis. My favorite entry is after Hammers as you can see from the charts. If i dont get a good entry i wait until i do. With short strikes this close perfect entries are imperative to my strategy.
I wasnt very comfortable putting the APR Put spread with the SPX at 10 points above the support line but given the strong reversal the day before, i thought the risk was justfied.
From a technical standpoint, it is likely that we retest the 50 MA over the next few sessions, thats why i was curious earlier regarding optioncoach's entry into put spreads. Also, notice the negative divergence on the RSI. At every new SPX high, the RSI has been lower, so if i had to play the guess game here i'd say it's likely we go lower from here.
As you can see and as i said before, i use the last 3 month trading range and enter my trades using technical analysis. My favorite entry is after Hammers as you can see from the charts.
The bullish/bearish engulfing patterns on the chart seem to be pretty accurate also.
Also, notice the negative divergence on the RSI. At every new SPX high, the RSI has been lower, so if i had to play the guess game here i'd say it's likely we go lower from here.
Yes, clear divergence between RSI and price. I also think we are going lower from here- towards the end of the channel. I am waiting to open the put side......
Question:
When the price breaks above/below the price channel, what rules to you follow to stay in the trade or close/adjust?
When I trade close XEO spreads, I close as soon as the price breaks the channel. But, as you can see from the chart the breakouts could be false.
Do you use number of days outside the channel? or confirmation from MACD/stochastics, OR......???????
I open the next spread and double the size, then i close the previous spread as close to breakeven as possible on the first pullback(doesnt always happen therefore the double sizing allows me to make up for the loss(2/1 risk/reward) if spread isnt closed and still keep the original credit).
I purposely start all my trades at half the size because i know its likely i will have to adjust so when that happens i am perfectly comfortable at twice the size. (My original post on page 771 has the details)
I dont use MACD/sto for confirmations, only for general directions. As long as there is a clear 3 month range, i enter at the support/resistance lines. The only time i won't enter is if there's too much or too lil time until the exp month i am looking for or if i miss the reversal day, sleeping at the wheel
Question on strong move scenerios (such as post-Katrina, pre-Thanksgiving and beginning of 2006), there are very likely scenarios where the index moves against you and you go out and double up and the index keeps moving against both positions now. Since you wait until the short strike to adjust, you will not likely get back out at breakeven.
Has this happened or have you planned on then going out further and doubling even more, thus having 3 different spreads at perhaps 10 contracts, 20 contracts and 40 contracts?
This bothers the risk manager in me only in that it can become a martingale situation where you keep doubling and taking losses on the previous spread. What has been your experience?
Has this happened or have you planned on then going out further and doubling even more, thus having 3 different spreads at perhaps 10 contracts, 20 contracts and 40 contracts?
This bothers the risk manager in me only in that it can become a martingale situation where you keep doubling and taking losses on the previous spread. What has been your experience?
Great questions. That's why i have some safe guards in place.
1) I only double two times with calls and 1 time with puts. Therefore, i dont keep doubling until i am wiped out. If the short strike is hit on my doubled position, THEN CLEARLY we are way out of the channel thus i must wait for the new range to form. Also, to double up a third time then the first spread MUST be closed first. I dont enter a third spread with 2 against me
2) I've done this for 12 months only, and i havent had a chance to double up /down more than once. So far, the market always retreated back and allowed me to close my initial trade.
3) I sually go for credit of around 1.5 on a 5 point spread so it isnt that hard to breakeven with lil theta left and being around the short strike.
4) Again, i am trying to perfect that part still where after the 2nd double i may have to use some type of a hedge but i havent figured it out quite yet. My trading allows for the current risk i am taking, therefore, i havent put much thought into just yet(also, it hasnt happened yet).
5) The events that you mentioned, oh i remember those runs. Thats where i had my 3 losers.
Thanks for the answers and your approach. I am sure we all can put our minds together and come up with some interesting ways to hedge the risks. This might be interesting to do for swing trades on the same way you do using TA. One could do 10 spreads for $1.50 and $1,500 and therefore the overall risk is quite contained and limited.
We have discussed many ways to hedge the further OTM spreads, so I am sure we can deal with these spreads as well which are more sensitive to market moves being closer to the money and higher gamma/delta.
You might want to start looking into diagonalizing your positions a la Murray/Sailing and see if this gives you more choices for adjustments and profits. I am going to play with the idea of diagonalizing and ratioing the spreads you are trading.
We have discussed many ways to hedge the further OTM spreads, so I am sure we can deal with these spreads as well which are more sensitive to market moves being closer to the money and higher gamma/delta.
You might want to start looking into diagonalizing your positions a la Murray/Sailing and see if this gives you more choices for adjustments and profits. I am going to play with the idea of diagonalizing and ratioing the spreads you are trading.
Isn't the whole point of WAY OTM spreads NOT to hedge? I'm thinking if you go so far OTM then you should not even consider hedging except once or twice a year...as per your own thoughts when first opening this thread. Lets face it we are always looking for less risk MORE reward and it just isn't there. Either we will be closer to the money taking a greater risk or more OTM taking a smaller reward.