SPX Credit Spread Trader

The crappy VIX charts I was using only went back to 2004, unless something is wrong with Bigcharts and OX charts.......Probably a glitch. Who knows...

Well even 15 points would put OTM strike ITM and the VIX buildup began before 9/11, it started beginning of SEPT. SO if you were hedging regulalry, the overall VIX increase could have been much more than 15 points.
 
Quote from optioncoach:

I understand your points but a 20 call for $0.30 is cheap and the VIX is at 11.50 or so. If a huge fecal projectile hits the fan, VIX would double easily or more as noticed in the 9/11 instance or the 2002 July crash (remember the context is Black Swan drops). A 20 strike call could be adequate protection if the VIX spikes to 35 or 40 only. As I said, if the 20 Call only is worth $5.00 or $7.00 you still making major change to hedge your spreads partially. I do not think you need to go ATM if you we are talking about major caca in the spinng air mover. It is a cost you can control by how many contracts and/or strikes you choose.

Again this is a hedge against one specific type of risk, not a partial hedge we normally have been discussing. :D

I am not trying to convince you all to do this as the buying pressure will raise the call premiums LOL. BUt for those who were looking for Black Swan insurance, this is one possible choice. Not perfect, but presents some interesting ideas...
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I didn't mean to imply that ATM calls were necessary but maybe 15 or 17.5 strike instead of 20 strike. Anyway, I understand what you are getting at, and I think it is as good (or maybe a bit better) as any other black swan hedge. I'm not trying to make waves. I think it is definitely worth a closer look and some experimentation. :D
 
Quote from optioncoach:


Well even 15 points would put OTM strike ITM and the VIX buildup began before 9/11, it started beginning of SEPT. SO if you were hedging regulalry, the overall VIX increase could have been much more than 15 points.
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Good point. That is why I was saying earlier that this hedge is much more enticing right now, given the fact that VIX is likely to increase somewhat anyway.
 
Actually for MAY he 17.5 strikes may not be bad for the same price or $0.05 more than $20 strikes and therefore may be more bang for the buck since VIX has hit 20 on moderate drops. If I get filled on my MAY put spreads I am going to look at some 17.5 strikes....

This is why I started this journal.... so I would have someone to talk to about trading other than my cat..... who is 2% ahead of me year to date by the way....... :mad:
 
coach,

i think we sucked cache into this :D


Quote from optioncoach:

A 20 strike call could be adequate protection if the VIX spikes to 35 or 40 only.
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Here is a major flaw in this thinking. and, i really feel like jonny raincloud here but i think there is something else that needs to be noted. You guys are assuming the vix will go to 60 from 11 and that may not be realistic. Even 30 is quite a stretch.

Look at the 9/11 crash and the corresponding jump in the vxn as percentage move and not point move. so if you bought the options the day before assuming u had a dream the vxn went from 65 to 95. that is a 50% move.

If you bought earlier in the month say the low of 50. that would be a almost 100% move.


so fast forward to today, a 50% jump would put us at under $20, a 100% jump puts you at $23. Now all of a sudden your 20 calls are worth a couple of bucks at best.

I dont see the vix jumping 500%+ within a month(which is what u guys will be buying, front month options), show me a chart that says otherwise?

Certainly some food for thought and alot more discussion, which i think we all need a break from :D
 
I don't remember why this happened, but last year when I was a total newbie at trading credit spreads I sold a 15x1175/1185 call credit spread. I only had about 30k in my account and I let the index violate the 1175 all the while saying, "it can't go up anymore" and it kept on going up. Needless to say I was in the hole the entire 15k, so I figured "f**k it, just let everything expire", and then the drop occured and it saved my newbie red as*. I leared 3 things that day:
1) Your a risk manager first, and always mangage your account like a business, never treat cash like it's just numbers on the screen
2) My mom was really right all those years, and someone was looking out for me
3) Life tastes so sweet when you somehow avoid getting your as* handed to you.

I was totally to blame, but I gotta tell ya, I posted a IBM background image on my screen for 3 months.

sd


Quote from omcate:

If memory serves:

The drop on April 14 and 15 was mainly due to the bad earning report from IBM. The information was leaked to the public, so IBM announced their earning miss ahead of schedule. I cannot recall what happened on April 13, 2005. April 15 was expiration Friday. You may like to look at the chart of IBM for this period of time.
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Quote from rallymode:

coach,

i think we sucked cache into this :D

Here is a major flaw in this thinking. and, i really feel like jonny raincloud here but i think there is something else that needs to be noted. You guys are assuming the vix will go to 60 from 11 and that may not be realistic. Even 30 is quite a stretch.

Look at the 9/11 crash and the corresponding jump in the vxn as percentage move and not point move. so if you bought the options the day before assuming u had a dream the vxn went from 65 to 95. that is a 50% move.

If you bought earlier in the month say the low of 50. that would be a almost 100% move.


so fast forward to today, a 50% jump would put us at under $20, a 100% jump puts you at $23. Now all of a sudden your 20 calls are worth a couple of bucks at best.

I dont see the vix jumping 500%+ within a month(which is what u guys will be buying, front month options), show me a chart that says otherwise?

Certainly some food for thought and alot more discussion, which i think we all need a break from :D
More...

First off, I want to make it clear that I'm switzerland on this one. I'm not for it or against it. I'd like to note that one of my first points was that historically a big event only causes an immediate 15-point jump. This is why I was saying that at the present time, buying MAY 15 or 17.5 strikes would probably be better.

On the other hand, I don't know that I am looking at the VIX in terms of percentage moves. While it might be said that equity/index price movement follows a lognormal distribution, I'm not sure that I buy that argument for the VIX. VIX price is not based on company valuation. I don't think I subscribe to the idea that a volatility index follows the same rules for price movement. In other words, I think that a 250 point drop on the SPX might cause the VIX to reach 55 whether it was at 15 the day before, or 30 the day before. This idea is supported by the charts in JUL-AUG 98'. SPX dropped from 1185 to 955 while VIX jumped from 17 to 50.

I'll admit though that I'm not very familiar with VIX pricing or price action. So I might not have any idea what I'm talking about. Therefore, the above paragraph is more a question than a statement.
 
I think if you look at VXN at the beginning of SEPT 2001 it was below 50 and after 9/11 it spiked to 90 or so which is a huge. The initial run-up in VIX before 9/11 accompanied steep declines in the index so the entire SEPT movement would have been hedged if you did this regularly. I assume that from Sept 1 to post 9/11, VIX also made a huge jump.

In July 2002, the jump in VXN with the crash was also significant on % terms.

My view is that if you sell put spreads and "donate" a small portion to slightly OTM VIX strikes you will have a partial hedge against moves of significance. I do think the 17.5 strike for May would be better perhaps and would catch even a moderate move like post-Katrina where VIX came close to 20.

Since VIX options is new we have no history its option price movement, but I am willing to bet that it would be enough to provide some profit for hedging purposes. Let's hope I never find out lol...

One idea is to sell the FEB 2007 slightly ITM puts (European style) and use that to finance the month to month call purchases with the expectation that IV will be higher within the year then where we are now.... Hmmmm risky though...

ANYWAY we have beaten to death. As usual I will test it with my money lol...


Quote from rallymode:

coach,

i think we sucked cache into this :D




Here is a major flaw in this thinking. and, i really feel like jonny raincloud here but i think there is something else that needs to be noted. You guys are assuming the vix will go to 60 from 11 and that may not be realistic. Even 30 is quite a stretch.

Look at the 9/11 crash and the corresponding jump in the vxn as percentage move and not point move. so if you bought the options the day before assuming u had a dream the vxn went from 65 to 95. that is a 50% move.

If you bought earlier in the month say the low of 50. that would be a almost 100% move.


so fast forward to today, a 50% jump would put us at under $20, a 100% jump puts you at $23. Now all of a sudden your 20 calls are worth a couple of bucks at best.

I dont see the vix jumping 500%+ within a month(which is what u guys will be buying, front month options), show me a chart that says otherwise?

Certainly some food for thought and alot more discussion, which i think we all need a break from :D
More...
 
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