SPX Credit Spread Trader

800 pages IS a lot so no problem asking questions...

As far as the amount of money that can be managed, I think some here are doing this with $10,000 of capital and one hedge fund manager I know personally is doing something similar with over $40 million in capital. If you have a lot of capital like that you simply do wider strikes (he does 50 and 100-point wide spreads). So the amount of money you use fo this strategy is only limited by your own capital and risk and trade management requirements. I think the SPX is liquid enough to handle 3000 spread orders since volume on some strikes far exceeds that although mainly ATM strikes. To be honest I would think over $100 million would be too big. The more money you have, the wider the strikes to make it work effectively. I doubt you can take $10 million and do 10 point strikes lol.

With respect to this strategy, this thread alone shows you how a group of people can do the same strategy but differ greatly in strike selection, risk, adjustment styles and capital. So even if different funds dabbled in this strategy, I think the individual approaches would be as different as they are here to allow different opportunities with different approaches.




Quote from MAD10:

OptionsCoach: thanks for the thread!
I have a question (it may have already bean answered and I usually make an attempt to find an answer by reading through a thread, but 800+ posts...)
How much money can be managed with your strategy (class of strategies)? i.e.What are your markets' liquidity constraints?
Thanks!
(I have little experience with the options markets but given the strategy's return profile and the institutional quest for low vol performance are the opportunities being squeezed?)
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J-Law,

Basically I do 5, 10 and 15 point spreads and which one I choose for a given month depends on my search through the chains and where I think I can get the credit I am happy with. Sometimes it is in the 5-point spreads, sometime in the 15-point spreads. It is a trade off of wider spreads, fewer contracts, narrow spreads, more contacts and where I can get my money. I do not have a specific preference. :D


Quote from J-Law:

Coach,

Notices your positions earlier on......

Verticals were 15 handles bet short and long strikes, oh a couple hundred pages back in the journal.
Now your spreads are 10 handles apart.

Any reasoning behind the change ??

Great journal you have brought to the community. Great contribution and hats off to you on giving back.

Best,

J-law
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Not that I'm in this category, but why do you need to do wider strikes with a mult-milllion dollar account. Is it because if you only did 10 or 15 point wide strikes you would be trying to sell too many contracts?

Quote from optioncoach:

800 pages IS a lot so no problem asking questions...

As far as the amount of money that can be managed, I think some here are doing this with $10,000 of capital and one hedge fund manager I know personally is doing something similar with over $40 million in capital. If you have a lot of capital like that you simply do wider strikes (he does 50 and 100-point wide spreads). So the amount of money you use fo this strategy is only limited by your own capital and risk and trade management requirements. I think the SPX is liquid enough to handle 3000 spread orders since volume on some strikes far exceeds that although mainly ATM strikes. To be honest I would think over $100 million would be too big. The more money you have, the wider the strikes to make it work effectively. I doubt you can take $10 million and do 10 point strikes lol.

With respect to this strategy, this thread alone shows you how a group of people can do the same strategy but differ greatly in strike selection, risk, adjustment styles and capital. So even if different funds dabbled in this strategy, I think the individual approaches would be as different as they are here to allow different opportunities with different approaches.
More...
 
I think it is much easier to place 3000 100-point wide spreads than to place 60,000 5-point spreads or even 20,000 15-point spreads.

Also you can go further OTM since the option you are buying is so cheap to hedge. It is basically selling deep OTM puts and then buying an even deeper one to limit the margin and risk. So you could sell the 1200 strike and buy the 1150 or 1100 strike and this get a decent credit way OTM thenhaving to go up to 1230 or 1250 for 10 point strikes.

Quote from rdemyan:

Not that I'm in this category, but why do you need to do wider strikes with a mult-milllion dollar account. Is it because if you only did 10 or 15 point wide strikes you would be trying to sell too many contracts?
More...
 
OK Guys... Is it me or is anyone else having this problem?

Haven't gotten an email from ET in over 48 hours. I'm guessing somehow I am unsubscribed from my threads. My email is working fine, just no ET threads.

Wonder what I did to get booted...:confused:
 
Coach (and anyone else),

Is anyone actively hedging their spreads or ICs when the market goes against you by going long/short the futures?

If not, this might be a good expansion topic to consider?
 
Quote from andysmith:

Coach (and anyone else),

Is anyone actively hedging their spreads or ICs when the market goes against you by going long/short the futures?

If not, this might be a good expansion topic to consider?
More...

I sometimes do ES scalps at strong resistance/support areas, but those trades occur in my aggressive portfolio and are not related to my SPX/ES credit spreads.

I don't consider the futures as a viable hedge since if you are wrong you will do more harm than good, and the credit you received when you opened the spread can evaporate in no time when ES goes against you.

Only viable use for futures could be perhaps after hours if you can manage to get a head start on a after hours move or a good fade.
 
Futures are a "Break Glass in Case of mergency" strategy. If the index makes a huge move and threatens your position you can long or short the futures to protect you from the huge swing. The profits from the futures can allow you to get out of the position quickly with a limited loss or profit depending on the number of contracts.

Best example is a potential crash and the market is screaming to your short strike and looks like it will keep falling. The parachute or tourniquet you use is the futures to stop the damage and get out with as little harm as possible.

Using futures regularly to hedge like partial hedges is more dangerous. If the market is moving lower and your 40-point oTM strikes is getting you nervous, adding a future position means margin costs and the risk that the market could move away sharply and your loss and risk increases as the future loses money. A long put partial hedge, for example, has a limited debit. Short futures when the market is moving lower has unlimited risk and margin requirements and is not intended for long-term holdings against a long spread position. You short the futures when the market is crashing hard to your short-strikes and looks like it will keep falling (9/11, Black Monday, this type of events). It is an immediate band-aid to stop the bleeding so you can get out.

This is my opinion of course but futures are under a glass and you use them only in thse dire circumstances. Playing with the futures in other times could lead to adding losses and risk to your positions, especially if you let them go overnight.

I daytrade the ES, but will only add it to my SPX spreads on those Black Swan days if needed. There may be positions where you can sell put spreads and short a few contracts where you expect a rangebound market so that upward movements only eat slightly into your profits using small contracts and downward movements can lead to nice profits if the move is big enough. This is swing trading perhaps the moves but is still too risk y for long-term use of futures and should be avoided. However it just might be easier to add long SPY or XSP puts instead as hte partial hedges.

So bottom line, use futures only in case of an H.G Wells scenario or if Bush mentions Iran and Nukes and War in the same sentence :)
 
Coach, thanks... I'm actually following this thought from another thread... I should have mentioned that I'm considering using futures to hedge when the market moves UP (and towards my call credit spread). On the downside, yes, the methods you've outlined are superior.



Quote from optioncoach:

Futures are a "Break Glass in Case of mergency" strategy. If the index makes a huge move and threatens your position you can long or short the futures to protect you from the huge swing. The profits from the futures can allow you to get out of the position quickly with a limited loss or profit depending on the number of contracts.

Best example is a potential crash and the market is screaming to your short strike and looks like it will keep falling. The parachute or tourniquet you use is the futures to stop the damage and get out with as little harm as possible.

Using futures regularly to hedge like partial hedges is more dangerous. If the market is moving lower and your 40-point oTM strikes is getting you nervous, adding a future position means margin costs and the risk that the market could move away sharply and your loss and risk increases as the future loses money. A long put partial hedge, for example, has a limited debit. Short futures when the market is moving lower has unlimited risk and margin requirements and is not intended for long-term holdings against a long spread position. You short the futures when the market is crashing hard to your short-strikes and looks like it will keep falling (9/11, Black Monday, this type of events). It is an immediate band-aid to stop the bleeding so you can get out.

This is my opinion of course but futures are under a glass and you use them only in thse dire circumstances. Playing with the futures in other times could lead to adding losses and risk to your positions, especially if you let them go overnight.

I daytrade the ES, but will only add it to my SPX spreads on those Black Swan days if needed. There may be positions where you can sell put spreads and short a few contracts where you expect a rangebound market so that upward movements only eat slightly into your profits using small contracts and downward movements can lead to nice profits if the move is big enough. This is swing trading perhaps the moves but is still too risk y for long-term use of futures and should be avoided. However it just might be easier to add long SPY or XSP puts instead as hte partial hedges.

So bottom line, use futures only in case of an H.G Wells scenario or if Bush mentions Iran and Nukes and War in the same sentence :)
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