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SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Hello folks,
I had noticed a few times there is little options price movement for VIX options even though the VIX value can move by many percentage points. Is this casual observation also your observation?
I had noticed a few times there is little options price movement for VIX options even though the VIX value can move by many percentage points. Is this casual observation also your observation?
Quote from cdowis:
Rallymode, I have read some of your recent posts, and still not sure what you are proposing as the alternative to the FOTM credit spreads.
Not proposing anything. If i start my own journal one day i might propose something. LOL
We all must find what works for us. All i am saying is that if you are relatively new to options (0-2 years), you shouldnt be trading FOTM credit spreads as i am quite certain you will not be able to manage the risk during an adverse move. Most veteran traders wont touch those, that should say something. Before you improve your directional and risk management skills, you should not be trading low r/r positions. That's just my opinion and i am sure many here disagree.
What works for me most likely wont work for you but i do trade close to the market. I try to keep my r/r at 1:2, so i go as FOTM as possible to get into such a position yet i try to stay outside of the trading range. (usually within 20-25 points) Whenever i dont get my entries lined up, i stay out for that month.
Rallymode
I think you have become more pessimistic than me about my loss. Let me resfresh some basics. Basically, there are 3 trends in the market-- Uptrend, Downtrend and sideways trend. The trick is identify the trend and use the appropriate strategy.
In an uptrend, mere purchase of a call can make you a lot of money and in down trend a long PUT. when the market is channeling, IC is best. The credit spreads we do here can take advantage of the direction, implied volitility and the time decay. and a index gives a nice diversification.
Thats what i was trying to do when i entered 720/730 Bull Put when RUT was around 742. I belive the entry was a little ambitious, yes but not that dumb. I just lost control of the exit and let my emotions determine it.
Blaming the entire strategy or comparing me to veterans is worst thing to do or say. By being honest and taking complete accountability, i am that much closer to success. If you cant even diagnos the problem, how can you cure it. Anyways, i appreciate all the replies.
I think you have become more pessimistic than me about my loss. Let me resfresh some basics. Basically, there are 3 trends in the market-- Uptrend, Downtrend and sideways trend. The trick is identify the trend and use the appropriate strategy.
In an uptrend, mere purchase of a call can make you a lot of money and in down trend a long PUT. when the market is channeling, IC is best. The credit spreads we do here can take advantage of the direction, implied volitility and the time decay. and a index gives a nice diversification.
Thats what i was trying to do when i entered 720/730 Bull Put when RUT was around 742. I belive the entry was a little ambitious, yes but not that dumb. I just lost control of the exit and let my emotions determine it.
Blaming the entire strategy or comparing me to veterans is worst thing to do or say. By being honest and taking complete accountability, i am that much closer to success. If you cant even diagnos the problem, how can you cure it. Anyways, i appreciate all the replies.
WOW... I leave for the day 9:45 Eastern to spend the day sans computer OR TV...come back and all hell broke loose!!! FWIW Coach nailed it. Since 2004 we have been in a generally trendless market...up..down..sideways...nowhere. In this market we have had some vigorous corrections and some months with great upside. So far I see nothing has changed.
Before I left this am I added to my Bull put position..well at least put in the order...saw it filled at $1.60 when I got home (June 1240/1225puts) May positions at least the short 1250's have been closed...short 1230 right now.
Chrdso I don't think I would completely give up on the bull put spreads...if they are FOTM you will be fine...especially when put on when the mkt is oversold. We have 30 days before June exp...can we still go down? sure...but the odds are that we will be higher June exp than May SET.
edit...I would be closing ANY put that is at 1265:eek: tomorrow
Before I left this am I added to my Bull put position..well at least put in the order...saw it filled at $1.60 when I got home (June 1240/1225puts) May positions at least the short 1250's have been closed...short 1230 right now.
Chrdso I don't think I would completely give up on the bull put spreads...if they are FOTM you will be fine...especially when put on when the mkt is oversold. We have 30 days before June exp...can we still go down? sure...but the odds are that we will be higher June exp than May SET.
edit...I would be closing ANY put that is at 1265:eek: tomorrow
This is the first month I've tried trading credit spreads using index options. Needless to say, I've gotten hammered. However I am not discouraged and I've been doing a lot of thinking lately about risk management and hedging.
Here are a few things I've been mulling over in my head and I would be most grateful if the experienced traders on this forum would offer their 2 cents.
#1) One thing I have considered doing to hedge against a 'black swan' type event is to buy a few extra puts when I set up my bull put spread. I see this as advantageous in two ways. Number one, if a black swan type event happens and the market opens down 10% I will be ok. Number two, if the market drifts towards my short price and I decide to close my original original spread I can close the entire position and and use the gain in the extra puts to mitigate my loss OR I can close the original credit spread but keep the extra puts and use them as a built in hedge for when I roll my strikes down. This of course would depend on time to expiration and premium potential.
#2) Another hedge I am considering is the "mouse ears" that Dan Sherridan talks about in his webcast on iron condors. I see this as beneficial in three ways. number one, the potential loss on the downside is greatly mitigated by the debit spread. Number two, if the index settles at a price close to the short strike I can make a nice chuck of change.
#3) I don't see the need for a hedge initially on the bull call spread. I think Dan Sherridan's approach of closing a position when the index gets within a certain number of points and adding 50% to your position when you roll up is a good enough starting strategy.
I'm not looking for a free lunch, nor am I looking to get rich quick. I am, however, very interested in using this strategy to make consistent profits and I am here to learn from those who have been down the road before. So, if you see a problem with anything I have written or you have a word of warning, please let me have it. thanks.
Here are a few things I've been mulling over in my head and I would be most grateful if the experienced traders on this forum would offer their 2 cents.
#1) One thing I have considered doing to hedge against a 'black swan' type event is to buy a few extra puts when I set up my bull put spread. I see this as advantageous in two ways. Number one, if a black swan type event happens and the market opens down 10% I will be ok. Number two, if the market drifts towards my short price and I decide to close my original original spread I can close the entire position and and use the gain in the extra puts to mitigate my loss OR I can close the original credit spread but keep the extra puts and use them as a built in hedge for when I roll my strikes down. This of course would depend on time to expiration and premium potential.
#2) Another hedge I am considering is the "mouse ears" that Dan Sherridan talks about in his webcast on iron condors. I see this as beneficial in three ways. number one, the potential loss on the downside is greatly mitigated by the debit spread. Number two, if the index settles at a price close to the short strike I can make a nice chuck of change.
#3) I don't see the need for a hedge initially on the bull call spread. I think Dan Sherridan's approach of closing a position when the index gets within a certain number of points and adding 50% to your position when you roll up is a good enough starting strategy.
I'm not looking for a free lunch, nor am I looking to get rich quick. I am, however, very interested in using this strategy to make consistent profits and I am here to learn from those who have been down the road before. So, if you see a problem with anything I have written or you have a word of warning, please let me have it. thanks.
Quote from Heatheranderson:
Rallymode
I think you have become more pessimistic than me about my loss. Let me resfresh some basics. Basically, there are 3 trends in the market-- Uptrend, Downtrend and sideways trend. The trick is identify the trend and use the appropriate strategy.
I've been aware for some time now how to trade options, but thank you for the recap. I merely had a suggestion but if you think that being honest with yourself will prevent you from taking a hit like this again if you keep trading the FOTM spreads the way you do, you are mistaken. I will just stay quiet the next time.
coach-> i cant believe you see all these new traders attempting these risky trades and you say nothing. It seems people around here listen to you a great deal. I know it's their money but damn.
Quote from scntaxpro:
This is the first month I've tried trading credit spreads using index options. Needless to say, I've gotten hammered. However I am not discouraged and I've been doing a lot of thinking lately about risk management and hedging.
Here are a few things I've been mulling over in my head and I would be most grateful if the experienced traders on this forum would offer their 2 cents.
#1) One thing I have considered doing to hedge against a 'black swan' type event is to buy a few extra puts when I set up my bull put spread. I see this as advantageous in two ways. Number one, if a black swan type event happens and the market opens down 10% I will be ok. Number two, if the market drifts towards my short price and I decide to close my original original spread I can close the entire position and and use the gain in the extra puts to mitigate my loss OR I can close the original credit spread but keep the extra puts and use them as a built in hedge for when I roll my strikes down. This of course would depend on time to expiration and premium potential.
#2) Another hedge I am considering is the "mouse ears" that Dan Sherridan talks about in his webcast on iron condors. I see this as beneficial in three ways. number one, the potential loss on the downside is greatly mitigated by the debit spread. Number two, if the index settles at a price close to the short strike I can make a nice chuck of change.
#3) I don't see the need for a hedge initially on the bull call spread. I think Dan Sherridan's approach of closing a position when the index gets within a certain number of points and adding 50% to your position when you roll up is a good enough starting strategy.
I'm not looking for a free lunch, nor am I looking to get rich quick. I am, however, very interested in using this strategy to make consistent profits and I am here to learn from those who have been down the road before. So, if you see a problem with anything I have written or you have a word of warning, please let me have it. thanks.
FWIW I like your #1...a few extra puts are nice...no real opinion on #2 and agree with #3..i've done pretty well with these OTM spreads..generally doing an IC and if you use a little TA when you place the spreads as long as we are still in a long term trending mkt you should do fine.