SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
The latest SET is established on the Friday of expiration, usually comes out around 12:30 PM, give or take 10 minutes.
If you want to see historical SET values, go to CBOE.com and you can look up SETs for this year and the past few years I think.
If you want to see historical SET values, go to CBOE.com and you can look up SETs for this year and the past few years I think.
Piccon,
I'm already in the MAY 1280/1270, perhaps a bit prematurely. What occilators do you use to time your entry? For the past few months I've I like the RSI 3 day for shorter-term entries and the slow line of 7-3-3 full stochastic in OB/OS conditions coupled with volume analysis for more major directional trades.
I'm already in the MAY 1280/1270, perhaps a bit prematurely. What occilators do you use to time your entry? For the past few months I've I like the RSI 3 day for shorter-term entries and the slow line of 7-3-3 full stochastic in OB/OS conditions coupled with volume analysis for more major directional trades.
I should mention though that there are times when the SET is REALLY wild. Off the top of my head, I think the SET after 9/11 was like 4.5% lower than thursday's close.
I believe you can also type in SET or $set on your quotes/charts page.
LMAO. Didn't mean to spawn twenty posts on SET...but perhaps a good thing. No surprises!
Risk/reward between butterfly and IC
If one were to compare iron varieties e.g. iron butterfly with iron condor, it would probably be easiest. They are both easily dissected (in the context of this thread) as a bear call vertical opposite a bull put vertical.
Dissection
The only difference between the two (fly and condor) are that the short strikes on the fly are at the same strikes whereas the short strikes on the condor are at different strikes. This is all obvious I know...just making sure we're on the same page.
You can alternatively dissect the iron fly/condor as a short straddle (fly)/strangle (condor) with an outer long strangle.
Synthetics
The less obvious, depending on how newbie one is, is that the debit put fly, debit call fly and credit iron fly at the same strikes are all synthetically equivalent with identical risk profiles.
The same goes for debit put condor, debit call condor and credit iron condor.
The reason one gets a credit for the iron variety is thanks to the short box attached to the debit variety. The short box is just a loan from the market. Slippage/fill issues aside, you aren't any better off just because you get a credit for the position.
To understand all of this better than I could explain and to save everyone else from the boredom of reading my prose, I personally would recommend Cottle's Options: The Hidden Reality (I have no connection with him)
Phil organised a discount but I believe it has officially expired. You never know, give the promo code a try. Either way it's peanuts to pay for the knowledge.
Risk/reward
I digress....again. Now to actually answer your question.
The width of the iron condor (distance between the short strikes) is directly proportional to the risk/reward of the position. The larger the width, the worse the risk/reward. Thus, it follows, the narrower the width the better the risk/reward!
The smallest width you can get is zero i.e. an iron butterfly and hence this has the best risk/reward.
When I talk about risk, I'm talking about money at risk. It has been witnessed than some people interchange probability inversely with risk i.e. referring to high probability FOTM credit spreads as low risk. This I believe is not correct and actually the opposite of the truth, but each to his own.
Probabilities
Why some folks appear to shy away from flies is that the probabilities of having a butterfly be profitable is a lot lower than having a super wide iron condor be profitable.
Therefore, the win/loss ratio is typically worse on an iron butterfly compared with an iron condor - but don't let that deter you! When you look at all of the numbers and understand the shape of the gamma curve you will come to only one conclusion!
There are other reasons why flies are preferable as I detailed here some time ago so will not belabor those points again.
As most know, Riskarb is a big fan of flies and if he likes them then they must be good! If you have a scan through some of his posts, I'm sure you'll find extensive information on flies well beyond that which I could disseminate.
Essentially, if you are going to short options/gamma - might as well short the juciest fatest tastiest gamma there is in town and that is ATM....but in a limited risk fashion - so buy some wings ...even ratio the wings if they are "underpriced" as per Taleb/Maverick LOL. You never know, might catch a black swan in those wings. Some kind of inter-species orgy going on there.
Disclaimer/Summary
I'm just a newbie here too so take my info with healthy dose of scepticism and check it out/backtest/forward test for yourself.
As with any strategy, it works best under the circumstances it works best LOL.
It is a good question that you asked so I hope I have shed some light on the subject matter from which others in addition to yourself can base your investigations on.
Prosperous trading!
MoMoney.
Risk/reward between butterfly and IC
If one were to compare iron varieties e.g. iron butterfly with iron condor, it would probably be easiest. They are both easily dissected (in the context of this thread) as a bear call vertical opposite a bull put vertical.
Dissection
The only difference between the two (fly and condor) are that the short strikes on the fly are at the same strikes whereas the short strikes on the condor are at different strikes. This is all obvious I know...just making sure we're on the same page.
You can alternatively dissect the iron fly/condor as a short straddle (fly)/strangle (condor) with an outer long strangle.
Synthetics
The less obvious, depending on how newbie one is, is that the debit put fly, debit call fly and credit iron fly at the same strikes are all synthetically equivalent with identical risk profiles.
The same goes for debit put condor, debit call condor and credit iron condor.
The reason one gets a credit for the iron variety is thanks to the short box attached to the debit variety. The short box is just a loan from the market. Slippage/fill issues aside, you aren't any better off just because you get a credit for the position.
To understand all of this better than I could explain and to save everyone else from the boredom of reading my prose, I personally would recommend Cottle's Options: The Hidden Reality (I have no connection with him)
Phil organised a discount but I believe it has officially expired. You never know, give the promo code a try. Either way it's peanuts to pay for the knowledge.
Risk/reward
I digress....again. Now to actually answer your question.
The width of the iron condor (distance between the short strikes) is directly proportional to the risk/reward of the position. The larger the width, the worse the risk/reward. Thus, it follows, the narrower the width the better the risk/reward!
The smallest width you can get is zero i.e. an iron butterfly and hence this has the best risk/reward.
When I talk about risk, I'm talking about money at risk. It has been witnessed than some people interchange probability inversely with risk i.e. referring to high probability FOTM credit spreads as low risk. This I believe is not correct and actually the opposite of the truth, but each to his own.
Probabilities
Why some folks appear to shy away from flies is that the probabilities of having a butterfly be profitable is a lot lower than having a super wide iron condor be profitable.
Therefore, the win/loss ratio is typically worse on an iron butterfly compared with an iron condor - but don't let that deter you! When you look at all of the numbers and understand the shape of the gamma curve you will come to only one conclusion!
There are other reasons why flies are preferable as I detailed here some time ago so will not belabor those points again.
As most know, Riskarb is a big fan of flies and if he likes them then they must be good! If you have a scan through some of his posts, I'm sure you'll find extensive information on flies well beyond that which I could disseminate.
Essentially, if you are going to short options/gamma - might as well short the juciest fatest tastiest gamma there is in town and that is ATM....but in a limited risk fashion - so buy some wings ...even ratio the wings if they are "underpriced" as per Taleb/Maverick LOL. You never know, might catch a black swan in those wings. Some kind of inter-species orgy going on there.
Disclaimer/Summary
I'm just a newbie here too so take my info with healthy dose of scepticism and check it out/backtest/forward test for yourself.
As with any strategy, it works best under the circumstances it works best LOL.
It is a good question that you asked so I hope I have shed some light on the subject matter from which others in addition to yourself can base your investigations on.
Prosperous trading!
MoMoney.
Rallymode,
Thanks for your answer.
Another question, what could be the maximum loss for one ES 1355/1360 bear call spread, if you bought for $1.50 credit and the ES expires at >1360?
__________________________________________________
Quoter from Rallymode:
To place an ES 5-point bear call spread with a short strike 25 points OTM IB requires an initial margin of $83 per contract and maint margin of $66. Don't ask me how they come up with that stuff ES options have a multiplier of 50. I hope that was helpful to you.
___________________________________________________
Thanks for your answer.
Another question, what could be the maximum loss for one ES 1355/1360 bear call spread, if you bought for $1.50 credit and the ES expires at >1360?
__________________________________________________
Quoter from Rallymode:
To place an ES 5-point bear call spread with a short strike 25 points OTM IB requires an initial margin of $83 per contract and maint margin of $66. Don't ask me how they come up with that stuff ES options have a multiplier of 50. I hope that was helpful to you.
___________________________________________________
If you dont know what the max loss on that spread is then perhaps you should stay away from futures derivatives or any multi legged options positions for that matter until you learn the risks. I suggest you read some of momoney's posts as he tends to get very detailed in his explanations and those can also point you to some reading materials.
To answer your question. The max loss on that spread is $3.5*50 or $175 per contract.