SPX Credit Spread Trader

[RichardRimes]

I agree with momoney's thoughtful reply. I do NOT trade the OEX but I agree the time for adjustment has past. Either hold on for the ride...because by most technical indicators the mkt is heading lower over the next couple of weeks. Or close. If the market does head lower in the next few days and you are able to get out for BE it sounds like that is what you are leaning toward and nothing is wrong with that. However to adjust with 2X the number of options and greater risk for only a BE point is imo the worst choice. GL

this is to wonton

 

[rallymode]

wonton,

you are in a difficult situation but i am sure you are already aware of that. My advice would be dependent on your position size or moreso on the % of port risked in this position.

If its a big chunk, i'd just cut my losses today and move on. Then i'd really readjust my strategy since being this close with no adjustment or more like late adjustment and risking a big chunk of port will only take you out one of the next times this hapens.

If its a small position then i'd probably let it ride and take my chances with a potential drop fully understanding that it may not come.

Good luck.

 

[wonton]

Hello Momoney, Donna, Rally:

Thanks for all your helpful thoughts.

My exit strategies were squishy and I'm now getting squished.

I realized last night that if I wanted to roll up and double up which some people suggest, I would have needed to do 1/2 of my position up front to do it.

I am market neutral and I have four ICs on and OEX is 1/4 of the total.

What exit strategies does everyone use?

MoMoney: it looks like you use a certain threshold....could you share your thresholds? I am unsure about what you mean by marked to market? Does it mean the current exit price?

I have toyed with:

at the short strike
1% away from the short strike
2% from the short strike
double the credit
triple the credit
triple the credit > three weeks out AND double the credit < three weeks out

In the OEX trade, I put it on and OEX ran up 12 points in the next 1 1/2 trading days.....

Dan Sheridan recommends when you put one on and it runs straight up right away, you just get out immediately.

I have had the most heartburn over trades on OEX. I find that I have to put OEX trades closer than RUT or SPX to suit my personality. I think that because OEX doesn't have a Friday AM settlement "surprise", there may be less premium in it and therefore you need to get closer than SPX for the same credits.

Thanks again to all for your input.

Wonton

 

[piccon]

I have made most of my money in OEX but this month I stay away

1) Because the premium was not acceptable for the strike I wanted.

2) For the same premium, I could go 35 points away for SPX

3) Coach told me to reduce my exposure and I listened


I look at OEX as a momentum paly; If TA tells me it's overbought, I can play it for 1 week and get out but not for a month.

Good luck anyway.

Quote from wonton:

Hello Momoney, Donna, Rally:

Thanks for all your helpful thoughts.

My exit strategies were squishy and I'm now getting squished.

I realized last night that if I wanted to roll up and double up which some people suggest, I would have needed to do 1/2 of my position up front to do it.

I am market neutral and I have four ICs on and OEX is 1/4 of the total.

What exit strategies does everyone use?

MoMoney: it looks like you use a certain threshold....could you share your thresholds? I am unsure about what you mean by marked to market? Does it mean the current exit price?

I have toyed with:

at the short strike
1% away from the short strike
2% from the short strike
double the credit
triple the credit
triple the credit > three weeks out AND double the credit < three weeks out

In the OEX trade, I put it on and OEX ran up 12 points in the next 1 1/2 trading days.....

Dan Sheridan recommends when you put one on and it runs straight up right away, you just get out immediately.

I have had the most heartburn over trades on OEX. I find that I have to put OEX trades closer than RUT or SPX to suit my personality. I think that because OEX doesn't have a Friday AM settlement "surprise", there may be less premium in it and therefore you need to get closer than SPX for the same credits.

Thanks again to all for your input.

Wonton

 

[momoneythansens]

Quote from wonton:

My exit strategies were squishy and I'm now getting squished.

I like the terminology

MoMoney: it looks like you use a certain threshold....could you share your thresholds? I am unsure about what you mean by marked to market? Does it mean the current exit price?

It depends on the risk/reward and size of the initial position.

For a wide IC such as yours I would normally just play the probabilities and let it run as the trade is essentially a probability bet in the first place...but it's easier to do this when your position size is small (say, <3% portfolio) and the rest of your portfolio combined inherently hedges your IC.

Otherwise, looking at the marked to market (running PnL of the spread) - when that reaches a paper loss equal to the max profit potential of the spread, that could be a good time to close the position. It's a simple mechanical stop loss strategy. You are probably well beyond that point already on your current position though.

Using the running PnL approach also lets you get out of the way quickly if the spread moves against you fast in the early stages. It's a more mechanical way of dealing with the subjective approach suggested by Dan Sheridan.

You can use the % or fixed points away approach but both of those don't take time to expiration and volatility etc. into account IMO.

Have a search through this thread to review other approaches. It's a question that comes up every other day. You can recognise the posts because they start like this: "I've been following this thread for.....just put on some positions....any tips on when to hedge/adjust?" LOL

Be warned, my opinions are in the minority and I'm certainly no expert. Make sure you hear from at least one other person!

Dan Sheridan recommends when you put one on and it runs straight up right away, you just get out immediately.

Sounds like a plan. He should know.

I have had the most heartburn over trades on OEX.

There is definitely a small window of opportunity with the XEO (I don't trade OEX) for wide ICs or FOTM credit spreads but if you are able to hit that window I believe you can get better risk/reward for the same probabilities compared with the SPX.

Once again good luck and prosperous trading.

MoMoney.

 

[rallymode]

Quote from wonton:




In the OEX trade, I put it on and OEX ran up 12 points in the next 1 1/2 trading days.....

Perhaps you should also rethink your entries and try to enter at resistance/support which means sometimes give up some premium while you wait but well worth it in my experience if you use strikes close to the market.

 

[momoneythansens]

Coach, can you tell him to give me his money.

Quote from piccon:


3) Coach told me to reduce my exposure and I listened

 

[Cache Landing]

Quote from rallymode:

Perhaps you should also rethink your entries and try to enter at resistance/support which means sometimes give up some premium while you wait but well worth it in my experience if you use strikes close to the market.

Agreed. My worst trades are those that I rush into while trying to capture that little bit of premium that theta is stealing from me each day.

 

[wonton]

Quote from Cache Landing:

Agreed. My worst trades are those that I rush into while trying to capture that little bit of premium that theta is stealing from me each day.

Hi Rally and Cache:

If you talk about support and resistance, it sounds like you leg into your ICs?

I have tried both ways (puts and calls on seperately, whole IC on at once).

It would have been much better to just put puts on 4/17....seems like some support there.

It can be catch 22, however. I would have been golden if I had put just puts on 4/17 and on 4/18-19 just calls.

But it's a tradeoff because if you are wrong, then you don't have theta working for you on the other side.

 

[piccon]

I found out that OEX needs to be traded at Resistance and Support in order to get good premium and be safe at the same time. IC on OEX is not that smart. Enter your call side at overbought and be patient because the market will come back down one way or another; enter your Bull Put at Oversold condition.

This way you will always make money in OEX. That's the way I traded it.

Sometimes I will wait 2 or 3 days before expiration and put and IC completely. Ex: market at 596, I will try to do 590/585 and 600/605. But just for 2 or 3 days before expiration

Quote from wonton:

Hi Rally and Cache:

If you talk about support and resistance, it sounds like you leg into your ICs?

I have tried both ways (puts and calls on seperately, whole IC on at once).

It would have been much better to just put puts on 4/17....seems like some support there.

It can be catch 22, however. I would have been golden if I had put just puts on 4/17 and on 4/18-19 just calls.

But it's a tradeoff because if you are wrong, then you don't have theta working for you on the other side.