SPX Credit Spread Trader

Added to my 1215/1225 Put Spread today because on an up day the puts were selling for phat premiums and added another 100 spreads. We may dip again in the future for better entry but decided to grab them today (SEARCH TERM: APRIL/MAY2006)



REVISED POSITIONS:


MAY POSITIONS

Sold another 100 spreads @ $0.60. New total spreads and average fill as follows:

-500 SPX MAY 1215/1225 Put Spreads @ $0.40

Credit = $20,000
Risk = $480,000
Return = 4.16%

Long 100 VIX MAY 20.00 Calls @ $0.20
Cost = $2,000


APRIL POSITIONS

SPX CALL DIAGONAL SPREAD (OPEN):

- 8 SPX APR 1340 Calls @ $4.70
+ 10 SPX MAY 1375 Calls @ $3.10

Net Credit = $660

Unrealized profit of about $1,000 for now but gonna let it run and make more off of it if I can.



SPX BULL PUT SPREAD (CLOSED):

- 350 SPX APR 1225/1235 Put Spreads @ $0.35

Net Credit = $12,250

Closed for net credit of $0.15 or $5,250



PUT SPREAD PARTIAL HEDGE (OPEN- and the reaons we are bullish lol):

+ 100 SPY APR 126/125 Put Spreads @ $0.10

Net Debit = $1,000
 
Coach, you may want to consider going long the VIX call backspread, say 200x400:

Short 200 VIX May 15 calls
Long 400 VIX May 17.50 calls

Recoup some of the expenditure if we close below 15 on VIX, but remains net long a ton of gamma+vega if we suffer event-risk. Net long 200 above 17.50.
 
Quote from optioncoach:

I have an open order to purchase 50 MAY VIX 15.00 Calls at $0.60..... you reading my order screens?!??!!?
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I saw a bunch go off at 55, hehe, was that you?
 
BTW, the futures are $1000/handle. You may want to trade some back month futures, say Nov at 138.50 and simply manage the option-roll and retain the Nov futures from month to month.

I would buy at least a 5 lot on futures.
 
The ratio spread leaves open huge risk if the VIX is at 15 or so at expiration so I may pass on the ratio spread.

My idea for the VIX futures was to go long VIX contracts so that if VIX explodes I make direct money on the futures with the assumption that VIX would only move lower a point or 2 if we surge higher so I would determine the max loss based on my assumption I would be willing to take and simply buy that number of futures. Downside is if VIX really drops hard on an explosion...
 
Quote from optioncoach:

The ratio spread leaves open huge risk if the VIX is at 15 or so at expiration so I may pass on the ratio spread.

My idea for the VIX futures was to go long VIX contracts so that if VIX explodes I make direct money on the futures with the assumption that VIX would only move lower a point or 2 if we surge higher so I would determine the max loss based on my assumption I would be willing to take and simply buy that number of futures. Downside is if VIX really drops hard on an explosion...
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There is a risk-hole at the 17.50 strike at expiration, but that can be managed as expiration approaches, provided you don't wait until 9am on expiration day to offset the position with VIX at 17.50. Don't look at the position in terms of a binary, expiration payoff.

Anyway, the futures are still your best bet with the VIX pushing on a string here. Plus, you've got inventory of VIX until Novie expiration.

Your 100 VIX 20 calls aren't much of a hedge assuming at 30-print on VIX. You'll only recover 25% of your risk-debit. Well, any hedge is better than none.
 
The assumption also is that on a VIX spike and drop in the market, the put spreads will not be worth the max loss yet with time value premiums and the fact that they may still be OTM. So the hedge from the VIX options may significantly offset a loss if I decided to close at that time. In other words assume VIX spike to 30 and SPX down to 1255. I would still be 30 points OTM and therefore I the spread would not be at or close to max loss. I could unravel the hole thing if I wanted to or just pocket the VIX profits as a hedge and take other actions. Lots of potential choices I never want to learn about lol.

My platforms do not allow for VIX futures in retail or prop so I will jus thave to observe them for now. And one thing I considered as you said is that I can go long the futures out to NOV and just take the cost of carry/margin during the time.

Quote from CALCULON:

There is a risk-hole at the 17.50 strike at expiration, but that can be managed as expiration approaches, provided you don't wait until 9am on expiration day to offset the position with VIX at 17.50. Don't look at the position in terms of a binary, expiration payoff.

Anyway, the futures are still your best bet with the VIX pushing on a string here. Plus, you've got inventory of VIX until Novie expiration.

Your 100 VIX 20 calls aren't much of a hedge assuming at 30-print on VIX. You'll only recover 25% of your risk-debit. Well, any hedge is better than none.
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