SPX Credit Spread Trader

[piccon]

I calculated that Fibonacci values just after the top 1294.90 was established So I took SPX(1245.74,1294.90). If I selected SPX(1253.61, 1297.57) later, the result would have not changed. the 1.382 value would have been 1314.66( more precision for reversal)

This is to tell you that SPX respect all the Fibonacci values. I have been following it for a year now.


for this month my target would be 1230 not higher and 1350 not lower.

Quote from wonton:

Hello Piccon:

Can you please clarify how you got your fibonacci numbers?

How did you decide to use 1246 and 1295? Why not 1253 or 1267?

Is your downside target 1228?

For what timeframes do these numbers hold?

If your targets are 1228 and 1313, what short strikes would you use for May, i.e. how much slippage?

Thanks.....


Does anybody trade on Fibonacci? I use it and it works well.

I believe SPX and OEX trade in accord with its Fibonacci numbers.

Did you look at SPX(1246,1295) Fibonacci 1.382=1313.718
OEX(569,589) Fibonacci 1.382=596.64.

Guess what were the last swing highs on SPX and OEX: 1314.07, 596.28 respectively. How much precise do you want it to be.

If you place your Short strike according to Fibonacci numbers, you don't have to worry about hedging most of the time.

It works for me all the time anyway. That's why most of my money is made on OEX Spreads.

I know it works on OEX and SPX . I trade RUT also ;not on Fibonacci but on other statistical data.

 

[El OchoCinco]

Here is an example of the Diagonal Iron Fly you could do the way I said.

SPX is about 1290. Passing over April cause expiration is too close.

MAY Sell 1290 Straddle @ $35.70

Round up another go 40 points OTM on each side for JUNE and buyl 1330 Call/1250 Put Combo for $21.20.

So MAY 1290 Straddle @ $35.70
JUNE 1250/1330 Combo @ $21.20

Net Credit = $14.50
Risk is around $26.50

Risk is if SPX moves outside of long strikes. The short straddle at expiration will be worth intrinsic value and offset up to 40 points by long options wiht their intrinsic and time value premium (no exercising here).

If SPX stays rangebound, you can let the straddle decay a bit and which ever price you buy it back at will result in the your net strangle cost. So if you buy it back for $25, you used $14.50 of credit and have a net strangle cost of $10.50 which is a good deal if the current strangle cost is more than $10.50 and less than initial cost of $21.20.

You could look to sell JUNE positions to bring in more premium (convert to short condor perhaps selling further OTM strangle). Lots of choices I guess.

But you have to be aware than initial risk is usually larger than the credit. However since you have longer-term strangle, the move in those options will be greater and thus result in a lesser loss than the estimated max.

 

[mantenar]

IV trader, I tested your concept on OEX. It looks interesting.

short OEX straddle May 585 - 15.60
Long OEX strangle July 600/560 - 13.00

IV for OEX is around 11.00. It has + vega and + Theta for the position. If IV raises, it will be very profitable.
It works well for the stocks going to earnings very well rather the indexes.

 

[El OchoCinco]

You have also added another dimension in that the strikes are not equidistant in a normal Iron FLY. Your calls are only 15 points away from the straddle while the puts are 25 points away.

Are you inserting a bias when you do this?

Quote from mantenar:

IV trader, I tested your concept on OEX. It looks interesting.

short OEX straddle May 585 - 15.60
Long OEX strangle July 600/560 - 13.00

IV for OEX is around 11.00. It has + vega and + Theta for the position. If IV raises, it will be very profitable.
It works well for the stocks going to earnings very well rather the indexes.

 

[andysmith]

I think Red Option calls this a straddle-strangle swap. Is this better than a 580 MAY/JUL calendar?

Quote from mantenar:

IV trader, I tested your concept on OEX. It looks interesting.

short OEX straddle May 585 - 15.60
Long OEX strangle July 600/560 - 13.00

IV for OEX is around 11.00. It has + vega and + Theta for the position. If IV raises, it will be very profitable.
It works well for the stocks going to earnings very well rather the indexes.

 

[skanan]

Coach,

Do you sell MAY straddle first, then buy JUNE strangle later or you do both of them at the same time ?

I'm wondering incase or margin requirement.

Thanks
Nick

Quote from optioncoach:

Here is an example of the Diagonal Iron Fly you could do the way I said.

MAY Sell 1290 Straddle @ $35.70

Round up another go 40 points OTM on each side for JUNE and buyl 1330 Call/1250 Put Combo for $21.20.

 

[skanan]

I've read "STRIP VOL" many times on ET forums. Can someone please explain what it mean ?

Thanks,
-Nick

 

[El OchoCinco]

Since they are diagonal, I would say you do it all as one trade. I am just talking hypothetically of course since I have not done these

Quote from skanan:

Coach,

Do you sell MAY straddle first, then buy JUNE strangle later or you do both of them at the same time ?

I'm wondering incase or margin requirement.

Thanks
Nick

 

[rallymode]

good luck getting filled midpoint on 4 legged combos.

 

[CALCULON]

Quote from andysmith:

I think Red Option calls this a straddle-strangle swap. Is this better than a 580 MAY/JUL calendar?

LOL, yeah, sure why not[straddle-strangle swap].

It's better in the sense that you're long gamma curvature on the wings while remaining short slope on the front month straddle. A time spread is similar, in that a put and call calendar at the same strike are equivalent, simply doubling of exposure when trading a "straddled" time spread. The time spread can be less advantageous when attempting to flatten gammas or maintain long cuvature[+dgamma at the wings].

The long time fly and long calendar are long vega and short gamma at neutrality. The calendar carries more vega, the fly favors gamma.

I would uniformally take the diagonal or long time fly over the standard long time spread into earnings. On index, it's a matter of what exposure you favor; gamma or vega.