SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
I'll have to post a pic of MY cat maggie...She wispers in my ear when to buy
Not sure I follow. I would not be looking to hold futures as a position but as a hedge. Like in July 2002 when the market crashed hard over two days and made a huge swing lower. Trying to get out of put spreads would be hard given the wild moves but you can grab the ES futures and short them and let them run and set up a cut off on the upside. You woul dhave to be willing to give up all profits on the spread in order to hedge. The main goal is to unwind the spread and futures at even or a very small loss, a profit if you are lucky. This should rarely but when it does, you got to hedge fast. Of course it works better if you are in front of the screen as the bad news is hitting or the market is collapsing 
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As for an example, assume you are about 20 points away on a $10,000 spread for a credit of $1,000. The market has two bad earnings reports and begins to drop heavily at the open, down perhaps 9 points. You could short a certain number of contracts to hedge against continued drop and set a stop loss at a certain amount as to when you would get out. If the market keeps dropping, the futures profit will hedge against a losses you might have to take to get out, especially if expiration is close.
This is not a perfect hedge either, the point is to stop the bleeding on the sudden move against you so you can get out with a limited loss as fast as possible.
.As for an example, assume you are about 20 points away on a $10,000 spread for a credit of $1,000. The market has two bad earnings reports and begins to drop heavily at the open, down perhaps 9 points. You could short a certain number of contracts to hedge against continued drop and set a stop loss at a certain amount as to when you would get out. If the market keeps dropping, the futures profit will hedge against a losses you might have to take to get out, especially if expiration is close.
This is not a perfect hedge either, the point is to stop the bleeding on the sudden move against you so you can get out with a limited loss as fast as possible.
Quote from optioncoach:
Not sure I follow. I would not be looking to hold futures as a position but as a hedge. Like in July 2002 when the market crashed hard over two days and made a huge swing lower. Trying to get out of put spreads would be hard given the wild moves but you can grab the ES futures and short them and let them run and set up a cut off on the upside. You woul dhave to be willing to give up all profits on the spread in order to hedge. The main goal is to unwind the spread and futures at even or a very small loss, a profit if you are lucky. This should rarely but when it does, you got to hedge fast. Of course it works better if you are in front of the screen as the bad news is hitting or the market is collapsing
Misunderstanding. Futures against options explain all. Didn`t catch whole picture, sorry.
IMO, events like this play themselves out more slowly so the drop is more steady and you will have time to get out or adjust. It is the unexpected events that cause real problems for FOTM spreads.
Iran causing problems will cause a drop but not a crash. Iran building its first nuke warhead and firing it at U.S. forces. Now that's a crash event.