SPX Credit Spread Trader

[rallymode]

Quote from rdemyan:

Rally:

The SPX is less than 20 points from your short strike. I know your strategy is to be less OTM than most of the traders on this board.

Refresh my memory as to what your risk management is on this position.

My risk management is all based on good entries and varying the position sizes. I really dont care whether the SPX gets close to my strikes, in fact thats where i actually start getting excited since historically i've had my biggest winners during the month or the month after the SPX hits my strikes.

And since it's only a 5 point spread, i wouldnt blink if SPX opened at 1400 tomorrow.

 

[rdemyan]

Is that because it confirms a breakout for you and then in subsequent months you have a directional bias that yields rewards in trading something other than credit spreads?



[/B][/QUOTE]
in fact thats where i actually start getting excited since historically i've had my biggest winners during the month or the month after the SPX hits my strikes.

And since it's only a 5 point spread, i wouldnt blink if SPX opened at 1400 tomorrow. [/B][/QUOTE]

 

[rallymode]

Quote from rdemyan:

Is that because it confirms a breakout for you and then in subsequent months you have a directional bias that yields rewards in trading something other than credit spreads?

No, i dont trade breakouts in this account. I wouldnt know it is a confirmed breakout until it's too late, i cant call them any better than anyone else can. I do simply support and resistance trades, but i vary the position sizing to compensate for losses. I am a firm believer of the mean reverting process in assett classes and my strategy is based around that.

 

[El OchoCinco]

Ok you lost me then. How do you make big money if the market breaks out and runs to your short strike?

Quote from rallymode:

No, i dont trade breakouts in this account. I wouldnt know it is a confirmed breakout until it's too late, i cant call them any better than anyone else can. I do simply support and resistance trades, but i vary the position sizing to compensate for losses. I am a firm believer of the mean reverting process in assett classes and my strategy is based around that.

 

[rallymode]

Quote from optioncoach:

Ok you lost me then. How do you make big money if the market breaks out and runs to your short strike?

I didnt say i make big money on that trade. How can that be when the trade is in the red? I am talking about the next one since i start increasing my positions. I am sure we discussed that before

 

[volatilitypimp]

Quote from rallymode:

No, i dont trade breakouts in this account. I wouldnt know it is a confirmed breakout until it's too late, i cant call them any better than anyone else can. I do simply support and resistance trades, but i vary the position sizing to compensate for losses. I am a firm believer of the mean reverting process in assett classes and my strategy is based around that.

I'm familiar with the 'mean reversion' as it applies to volatility. In my limited investment experience, I fail to see how this concept can be applied to the underlying assets. Theoretically, assets have no ceiling, however volatility does. Is it your contention that stocks(sectors, indexes) revert to their mean?

 

[RichardRimes]

VP I followed stocks for many years using fundamental criteria in particular PE ratio's and for most stocks they will trade at a given PE and get sold off when PE is higher than 5yr average and bought up with PE lower than 5 yr average...thats one small ex of mean reversion based on fundamental criteria (I think )

 

[rallymode]

Quote from volatilitypimp:

Is it your contention that stocks(sectors, indexes) revert to their mean?

Yes, precisely what i am talking about and the SPX is the perfect instrument in my opinion as it is broad based and has low volatility. Will the SPX run away from the mean for extended periods of time? yes, it sure can as history has taught us, but it isnt unmanageable.

Quote from DonnaV:

VP I followed stocks for many years using fundamental criteria in particular PE ratio's and for most stocks they will trade at a given PE and get sold off when PE is higher than 5yr average and bought up with PE lower than 5 yr average...thats one small ex of mean reversion based on fundamental criteria (I think )

donna, yes it is. mean reverting based on PE, however the caveat there is that profits can increase or fall i.e. changes in pe ratio w/o changes in price

my technique is based on price action during the last 3 months.

 

[piccon]

My technique is based on 1 month (20) trading days. Since november, my calculated strike has never got touched. I am not a big talking guy, I try to define a process and stick to it until it fails.
So far, so good.
3k, 4k a month is good for me; not to greedy.

Quote from rallymode:

Yes, precisely what i am talking about and the SPX is the perfect instrument in my opinion as it is broad based and has low volatility. Will the SPX run away from the mean for extended periods of time? yes, it sure can as history has taught us, but it isnt unmanageable.



donna, yes it is. mean reverting based on PE, however the caveat there is that profits can increase or fall i.e. changes in pe ratio w/o changes in price

my technique is based on price action during the last 3 months.

 

[RichardRimes]

http://online.wsj.com/article/SB114550097877130828.html?mod=home_whats_news_us

VP an interesting article in wsj abt HF managers who set up mathmatical trading models based on reversion to mean in categories as book value etc.....