SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Quote from nlslax:
My bubble bursts pretty easily nowadays...
I'll take out the magnifying glass and try to find where it was doctored. It might take me all weekend, but I'll get to the bottom of it.
I'd like to see the bottom of that pic, too!
I was watching a webcast on credit spreads a while back (from Dan Sheridan) and he suggested that one should make an adjustment/roll in two steps: 1) close the position (and take a day to clear your head), 2) put on the new spread.
This confused me because the problem with a two step roll is that you lose your margin if you close first, take the loss, wait a while, and then put on a new spread. Your new position will be smaller than the one you just closed (assuming you don't have extra unused margin). However, if you roll as one single step, you don't lose any margin. I'm doing a lousy job of explaining this... and maybe someone can state this much more clearly, but does anyone else see the flaw in a two-step roll?
This confused me because the problem with a two step roll is that you lose your margin if you close first, take the loss, wait a while, and then put on a new spread. Your new position will be smaller than the one you just closed (assuming you don't have extra unused margin). However, if you roll as one single step, you don't lose any margin. I'm doing a lousy job of explaining this... and maybe someone can state this much more clearly, but does anyone else see the flaw in a two-step roll?
First off Dan glances over a lot of small points in those presentations (probably due to time). Another example is the "Mickey Mouse" version of the condor he talks about that is more margin intensive than a regular condor.
But that aside I don't see how you "loose" margin. If you closed it, you get the margin released, and then are free to reopen again whenever you want. That is as long as your broker isn't tying it up for some reason with a waiting period, in which case you should look for a better broker.
Adding... using all your margin on one trade giving yourself no room to manuver isn't a good idea anyway.
Damon
An example:
Say you have $10,000 in an account. Now you put on a 10-pt spread for $1 credit, 10 times (i.e. position size of 10 spreads). Your margin requirement is $10,000. Your credit is $1,000. Your account will be worth $11,000 if the spread expires worthless.
Now say the underlying moves very close to your short strike such that the spread is worth $5 (up from the $1 at the time you sold the spread). You decide to buy back the spread and take a loss. So you buy back all 10 spreads for a debit of $5,000 and close the position. Your account value is now $11,000 - $5,000 = $6,000. You can no longer put on 10x 10-pt spreads for $1 credit... you can put on 6. Had you rolled, you would have been able to roll into another spread with position size of 10.
Say you have $10,000 in an account. Now you put on a 10-pt spread for $1 credit, 10 times (i.e. position size of 10 spreads). Your margin requirement is $10,000. Your credit is $1,000. Your account will be worth $11,000 if the spread expires worthless.
Now say the underlying moves very close to your short strike such that the spread is worth $5 (up from the $1 at the time you sold the spread). You decide to buy back the spread and take a loss. So you buy back all 10 spreads for a debit of $5,000 and close the position. Your account value is now $11,000 - $5,000 = $6,000. You can no longer put on 10x 10-pt spreads for $1 credit... you can put on 6. Had you rolled, you would have been able to roll into another spread with position size of 10.
P
premiertrading
How far back? GCM6 - GOLD June 2006 (COMEX) monthly chart goes back 10 yrs at barcharts.com
TOS added futures as a hedging tool. Their platform is good for that purpose. I've used the futures to hedge against losing SPX positions. But TOS only trades during daytime hours and their futures commissions are slightly high.
If you go to daytrade, check out some other brokers specifically as a futures account. I use IB ONLY for futures.
Does anyone else have a low commission futures broker? I looked at Tradestation. Looks cheap up front, but lots of back end costs. I don't trade enough to justify.
Sorry, slightly off topic. Consider it a hedging question.
They are one and the same thing.
Rolling up/down is buying the vertical and selling another vertical (or buying a butterfly/condor).
It doesn't matter if the two trades are done as one or separately.
In your example, buying power would prevent you from rolling.
Rolling up/down is buying the vertical and selling another vertical (or buying a butterfly/condor).
It doesn't matter if the two trades are done as one or separately.
In your example, buying power would prevent you from rolling.