SPX Credit Spread Trader

Quote from rdemyan:

That seems like a great credit for a 5 pt. vertical that is almost 35 points OTM.

Keep that up and you may actually convert a few of us :)
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It was going for $1 at 25 points OTM. I legged in on the swing. I normally dont like legging into spreads but today provided a good opportunity for this. Don't forget that this is the ES not the SPX, currently there's a 4 point premium built into the futures.

Also, now that the ES EOM options are here, i will probably do more ES spreads than SPX. Just wish the multiplier wasnt 50.
 
Thanks coach,

So the issues I may consider when using a wider spread are:

1)Allows me to go alittle FOTM with a credit comparable to that of a 5 pt spread closer to the money (so a built in hedge of sorts, all things being equal)

2) However because my spread is farther apart, I don't have the same benefit/protection of the long side like I do on the 5 pt......so if the market were to move strongly against my short weeks before expiration, I may actually have to consider closing out or adjusting my short sooner on the 30 point than the 5.

3) So if I'm a trader with capital in the 10k range who uses the risk managment technique of just closing out my spread if it gets alittle too close to my short....and the event I'm most concerned about is a strong move with weeks to go in expiration (w/ a 45-30 d entry), then I'm probably better served with going with a shorter width like a 5 point (b/c the long provides me with more cover...then battling a short which has a rocketing delta with little protection from the long)


Did I incapsulate your comments correctly?

BTW, this has been extremely helpful. :)






Quote from optioncoach:

I will just throw in my $0.0175 here with respect to 5-point spreads v. 30-point spreads.

I do not think you will get much comparing these two since they are quite different. There are pros and cons to doing each and it is really a matter of personal preference and how each would maesh with your own trading style and capital.

5-point spreads allow you to do big volume for small credits and take in nice premium. The short is really close to the long so if the market starts moving towards you, the long will help offset more initially than if the spread was much wider. Most cases it is hard to get a good credit since the spread is onyl 5 points apart due to the wide b/a spread. in most cases you have a negative bid for the spread or the wide b/a spread puts the midpoint close to $0. However with some time and good entries on swings you can grab one for decent credit and do nice volume. On a large market swing, the spread will reach a greater loss sooner than a much wider spread but depending on how and when you adjust it might not matter as much.

A wider spread means the long option will cost much less than the short one allowing for a greater premium. The margin is of course higher unless you are doing a fixed capital amount no matter the size of the spread. Wider spreads may allow you to go furtgher OTM since you can take in more premium and therefore use further out strikes. On the downside the long strke will be too far away in most cases to offset moves in the index against you. So if the market moves towards you, the short strike has a much greater delta in general and the position will suffer a larger loss in general on PAPER. Again, whether this paper effect matters depends on how you trade them.

But since you could choose different strikes with the narrow and wider spreads and they will react differently to market moves it is hard to compare them and really say which is better. One is better in certain situations than the other but it is really personal preference. One trader who does these in larger scale than me like the really wide spreads to be able to go as far OTM as possible and get a decent credit. I do not have the cheddar to make that profitable for me so I do not mind moving a little higher than him and use 5, 10 and 15 point spreads.

Personal preference really controls here as opposed to an objective easy answer.
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:) :)
 
Thanks, you're good....:)

Is there an advantage to rolling just the shorts to get more premium instead of rolling the whole spread (besides saving on comish)?

Quote from Aardvark:

Sure Andy...I don't start out with spreads that wide but for instance this month my initial put spread was 1215/1225. I closed that trade for a profit and a day or two later bought some 1225 (when the mkt started going up) the mkt kept going up so to get a decent credit I sold some 1250's. I closed out that spread for .20 and now I'm looking to sell some 1275's (covered by my June puts). Other times to get more premium I'll roll my shorts and end up with a very wide spread.

edit: sorry what was the question?:confused:
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Quote from Cache Landing:



a return of >30% since inception. Not incredible, but not bad I guess.:)
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30% in 5 months is not bad you guess? :D

You are being modest. Cache, you've said this before i am sure but what is your max risk per position and your max drawdown so far?
 
Quote from mdshiao:

Rallymode or anyone,

Ask a dumb question. What is the margin requirement for one ES 1355/1360 bear call spread?


Thanks,
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I havent a clue but will place the trade in my paper account tomorrow and let you know. My current margin is at 7% of portfolio value, however i have other positions so it's hard to tell which is which.
 
Quote from andysmith:



Is there an advantage to rolling just the shorts to get more premium instead of rolling the whole spread (besides saving on comish)? [/B]
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Thats a really good question Andy....multitude of answers...if the long put or call is Wotm then you would get so little its probably not worth the mm's time....if you don't care about the BP or margin then you save some money on commish AND you have a better chance of hitting a mid price on a single (I've even had improvements). Sometimes it makes sense to buy the whole spread back and other times not, so I guess there is no hard and fast rule. Again so everyone is clear we are talking about closing or rolling spreads so far otm and also fairly close to expiration that ONLY the black swan can possibly dent it.:)
 
Quote from knucklehead:

RallyMode,

I have to disagree with you. Selling a 10 point spread for $2 is inferior to selling twice as many 5 point spreads for $1. You are giving up the value of the butterfly.
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knucklehead,

just saw your post and no disrespect but me could care less about losing up value on a potential FLY. :D

I couldnt disagree more with ya and here is why:

Per my previous example.

1340/1345 bear call spread for $1
1340/1350 bear call spread for $2

You open 2 1340/1345's and collect $200.
I open 1 1340/1350 and collect $200.

The SET on expiration Fri is at 1341. You break even, i make $100. So who got the better spread? You see my point?
 
Quote from andysmith:

5 point swing does not a Battle make...
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To me, a non-event is relatively little movement on low to average volume. The "even battle" would be represented by little movement on high volume.

But at the end of the day, it appears you are correct. The volume wasn't anything extraordinary, so non-event would be the more appropriate term.:)
 
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