SPX Credit Spread Trader

My view of the diagonals is that there is the potential for loss on an upside move prior to short month expiration (on call diagonal) but there are plenty of adjustments that can be made in the APR month and in the MAY month to maintain a profit or get out for a small loss and work on MAY.

I have a 10*7 ratio diagonal for APR and MAY using 1340 and 1375 strikes and if the market moves towards 1340 as expiration approaches I can adjust the 1340 strike to stay on top of the position. There are many adjustments that I coud not fit here but the point is they would be in line with what we are doing with normal credit spreads. Except here we have a longer term long side which could provide additional hedges once we get out of April, i.e. if you need to adjust or close the April for a small loss, you have the MAY calls to sell calls against and reduce losses or adjust into different position altogether.

These require some finesse and looking for the right strikes and ratio but playing around with them can yield some good results. I am leaning towards these for the call side due to the skew and put spreads on the downside although call spreads to complete an IC is always an option :)
 
Quote from optioncoach:

My view of the diagonals is that there is the potential for loss on an upside move prior to short month expiration (on call diagonal) but there are plenty of adjustments that can be made in the APR month and in the MAY month to maintain a profit or get out for a small loss and work on MAY.

I have a 10*7 ratio diagonal for APR and MAY using 1340 and 1375 strikes and if the market moves towards 1340 as expiration approaches I can adjust the 1340 strike to stay on top of the position. There are many adjustments that I coud not fit here but the point is they would be in line with what we are doing with normal credit spreads. Except here we have a longer term long side which could provide additional hedges once we get out of April, i.e. if you need to adjust or close the April for a small loss, you have the MAY calls to sell calls against and reduce losses or adjust into different position altogether.

These require some finesse and looking for the right strikes and ratio but playing around with them can yield some good results. I am leaning towards these for the call side due to the skew and put spreads on the downside although call spreads to complete an IC is always an option :)
More...

I will also look into trying it out with the 10:7 ratio on a 35 point spread like you did. That seems the best possible scenario, given how options are priced especially if you get a small credit for it. Maybe, i misunderstood what sailing was saying as there clearly is risk and alot of it towards/beyond the long strike should you not make any adjustments.
 
Quote from optioncoach:

My view of the diagonals is that there is the potential for loss on an upside move prior to short month expiration (on call diagonal) but there are plenty of adjustments that can be made in the APR month and in the MAY month to maintain a profit or get out for a small loss and work on MAY.

These require some finesse and looking for the right strikes and ratio but playing around with them can yield some good results. I am leaning towards these for the call side due to the skew and put spreads on the downside although call spreads to complete an IC is always an option :)
More...

I can see adjustment opportunities, but have a hard time to understand usefulness of the strategy considering RR ratio vs. margin without adjustments.

Usually it means that:
1. my level of understanding is much lower
2. my level of understanding is higher :D

Let`s see which one is to be applied here.
 
yOU GUYS ARE FUNNY.

WHEN THE MARKET IS GOING UP, NOBODY POSTS ANYTHING. wHEN IT'S GOING DOWN, YOU HAVE SO MANY TO READ, YOU DON'T HAVE THE TIME OR YOU GET LOST.

CHEER UP.
 
Quote from piccon:

yOU GUYS ARE FUNNY.

WHEN THE MARKET IS GOING UP, NOBODY POSTS ANYTHING. wHEN IT'S GOING DOWN, YOU HAVE SO MANY TO READ, YOU DON'T HAVE THE TIME OR YOU GET LOST.

CHEER UP.
More...

That`s not me, pal :p
 
optioncoach and anyone else trading with him,

I want to throw something out there just for the sake of discussion. Let me use the last trade that you did.

Quote from optioncoach:



Sold 125 APR SPX 1235/1225 Put Spreads @ $0.30

Credit = $3,750
Risk = $121,250

Return = 3.10%
More...

Consider doing this trade instead.

Bought 70 APR 1225 Puts at $.80 (shaves .05 off the ask)
Sold 140 APR 1220 Puts at $.75 (split the B/A)

Credit $4,900

You can get even below the 1200 level and still get the credit you are getting with alot lower breakeven. you could get to like 100 points below the market on your short strike and still get a small credit That's a HUGE cushion. I am not sure if you will be filled at such prices though.

Caveats:

1) A large naked position which can destroy you if you stay unhedged when market moves closer to your short strike BUT your strategy is hedged the same way you would hedge this positon on a sharp move down.

2) Margin Effect? I am guessing this is where it might not be feasable to use.

3) I am not sure if OX even allows naked put selling on indexes. There was something like that i think when i was with them a while ago but i could be wrong.


Have you looked at that in the past or have you any idea on the margin this trade may require? Any comments?
 
All I had to do was read "large naked position" and "margin effect" to decide it was not for me :D

But seriously though, these are ratio put spreads which I have traded in the past on stocks where the margin is more managable. On SPX unfortunately, the margin is so high. You have 70 naked puts at 1220 which is a margin of close to $1,700,000 (this is quick calculation so correct me if I am wrong). The return does not look so good when the margin is taken into consideration.

SPX is just too high for any naked positions of considerable size.

Quote from rallymode:

optioncoach and anyone else trading with him,

I want to throw something out there just for the sake of discussion. Let me use the last trade that you did.



Consider doing this trade instead.

Bought 70 APR 1225 Puts at $.80
Sold 140 APR 1220 Puts at $.75

Credit $4,900

You can get even below the 1200 level and still get the credit you are getting with alot lower breakeven.

Caveats:

1) A large naked position which can destroy you if you stay unhedged when market moves closer to your short strike BUT your strategy is hedged the same way you would hedge the naked puts.

2) Margin Effect? I am guessing this is where it might not be feasable to use.

3) I am not sure if OX even allows naked put selling on indexes. There was something like that i think when i was with them a while ago but i could be wrong.


Have you looked at that in the past or have you any idea on the margin this trade may require? Any comments?
More...
 
Market up today, 10 posts so far...

I doubt there is a correlation with post #s and market action :D

Quote from piccon:

yOU GUYS ARE FUNNY.

WHEN THE MARKET IS GOING UP, NOBODY POSTS ANYTHING. wHEN IT'S GOING DOWN, YOU HAVE SO MANY TO READ, YOU DON'T HAVE THE TIME OR YOU GET LOST.

CHEER UP.
More...
 
Quote from optioncoach:

All I had to do was read "large naked position" and "margin effect" to decide it was not for me :D

But seriously though, these are ratio put spreads which I have traded in the past on stocks where the margin is more managable. On SPX unfortunately, the margin is so high. You have 70 naked puts at 1220 which is a margin of close to $1,700,000 (this is quick calculation so correct me if I am wrong). The return does not look so good when the margin is taken into consideration.

SPX is just too high for any naked positions of considerable size.
More...

Yea i figured that wouldnt work. Infact i tried to place the trade in my IB paper trading account and it said i needed an initial margin of $660,000 for 50 contracts :D
 
You must log in or register to reply here.
Back
Top