SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Whew! I was able to buy back my 580 put for zero credit/debit, so all I'm out is the commish.
I had the same RUT trade as Heather, but I entered it at the end of April and got out last week retaining 85% of the credit.
I've only been on this forum a week and already have learned a lot. Thank you all for the info and insight.
I've no SPX JUN trades yet but did get into a bull Put 575/580 @ 1.40. Also just noticed SPX is at 1269. Market's still going down.
I had the same RUT trade as Heather, but I entered it at the end of April and got out last week retaining 85% of the credit.
I've only been on this forum a week and already have learned a lot. Thank you all for the info and insight.
I've no SPX JUN trades yet but did get into a bull Put 575/580 @ 1.40. Also just noticed SPX is at 1269. Market's still going down.
I would recommend puting on a notional position into a "what-if" tool and play with the different parameters - time, underlying and volatility to see how they each affect the position - or running PnL
If you have the thinkorswim desktop platform, the vol step and day step plot lines really are fantastic for this kind of stress testing.
Building an understanding of the hedge parameters (greeks) for options of varying moneyness e.g. DITM,ITM,ATM,OTM,FOTM is beneficial for attaining that inherent feel for the way positions behave or are likely to behave under different scenarios and helps you to have your own "what-if" tool inside your head.
Criteria used to activate adjustments are dependent on personal style, risk appetite and conditions at the time. It is best to figure out your own stop loss/adjustment criteria - whether it be on deltas accumulated on the position or running PnL as a function of max risk/profit potential.
With the ATM credit spread you don't have to fear the underyling approaching your short strike (EDIT: compared to a FOTM spread) as you don't have expanding gamma (EDIT: relative to what you sold) making your deltas accumulate at an increasing rate when the underyling moves against you. Clear as mud.
Also, I would suggest you try this out with real money, using 2 lots. Why 2 lots? So that when you are in doubt on an adjustment etc. you can do half.
MoMoney.
If you have the thinkorswim desktop platform, the vol step and day step plot lines really are fantastic for this kind of stress testing.
Building an understanding of the hedge parameters (greeks) for options of varying moneyness e.g. DITM,ITM,ATM,OTM,FOTM is beneficial for attaining that inherent feel for the way positions behave or are likely to behave under different scenarios and helps you to have your own "what-if" tool inside your head.
Criteria used to activate adjustments are dependent on personal style, risk appetite and conditions at the time. It is best to figure out your own stop loss/adjustment criteria - whether it be on deltas accumulated on the position or running PnL as a function of max risk/profit potential.
With the ATM credit spread you don't have to fear the underyling approaching your short strike (EDIT: compared to a FOTM spread) as you don't have expanding gamma (EDIT: relative to what you sold) making your deltas accumulate at an increasing rate when the underyling moves against you. Clear as mud.
Also, I would suggest you try this out with real money, using 2 lots. Why 2 lots? So that when you are in doubt on an adjustment etc. you can do half.
MoMoney.
I just have a better feel for the XEO.
1) The channel it trades in seems to be well defined.
2) I can go just out of the trading range, with 5 point spreads,
around 20-23% probability and get around 1.20 credit.
3) If the index closes outside the channel - breaks the range - for a couple of days, I have been able to adjust (with butterflies/condors- maybe increasing 50%) and still stay profitable.
4) The key for me is, to watch the channel closely-any break in the trading range, and I will pull the trigger and adjust/close- no hesitation (this is the hardest part- trading mechanically. )
I have had to adjust couple of times, but have been profitable, so far.
My return on XEO, this month is 24% (6% on FOTM SPX)
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SPX - I still cannot get a feel for its range/movement. Also, I have found adjusting rolling up/down to be filled faster on XEO than SPX.
Usually more credit on FOTM in SPX, so I stay 1.5 std. dev. away . I will adjust only if the index moves 1 std. dev. (or within 20 pts of my short strike). Very few adjustments on SPX.
Also, because of the SET, I am not comfortable with just OTM on SPX.
So, just OTM (and out of the trading range) on XEO works for me ...................
Well, since nobody seems inclined to answer your question I throw in my two cents. ATM credit spreads are similar to trading long puts/calls. You simply give up the possibility of unlimited gains for the desired limited risk.
As such they should be treated in a similar fashion. As coach noted before, ATM positions are smaller (in terms of quantity) thus the paper losses caused by an adverse move in the underlying shouldn't be any less manageable than the FOTM variety. Obviously you can't adjust every time your short is breached, and the prediction that the market will stay still for the next month isn't as helpful.
There are numerous ways to adjust and hedge, and I'm sure rallymode is going to offer up a few suggestions. If you're inclined to roll up/down/out, be patient and time the roll. Don't get in a hurry just because your short is ITM. Remember that the losses aren't as swift. I always advocate re-analyzing the underlying and establishing a new forecast based on current factors. Adjust accordingto what type of new position you would be inclined to open if the existing position wasn't there.
Hey, no fair sneeking a response in while I was typing mine.
Coach:
Like you I am short the SPX 1255 and also like you regret placing the position. What are your thoughts about the position at this time. At what point would you think about getting out of the position. Any thing else I should be looking at would be greatly appreciated at this point. Thanks!
Like you I am short the SPX 1255 and also like you regret placing the position. What are your thoughts about the position at this time. At what point would you think about getting out of the position. Any thing else I should be looking at would be greatly appreciated at this point. Thanks!
I am just learning how to effectively hedge as well.
My feeling about your #2 (Dan Sheridan) option is this.....bottomline is when your are putting on the hedge "ear", you are creating a debit spread close to your short position (if your trading 5-15point spreads).
The primary effect of this would likely only be to protect for extreme moves against your short....by the time your hedge ear starts to make money, your pretty darn close to your short (or in major damge control mode) and given timing, etc you may at this point want to close the position out to limit further risk.
If your spread is OTM or FOTM, why not put a debit spread on farther away from your short position? That way if there is a move towards your short, but it's not extreme (as likely in more cased than not if your using guaging trends/TA in some way), you have a chance for both your credit and debit spreads to finish in the money?
The commisions should be the same....the only thing is you might be paying a bit more for the debit protection.
Have others came to the sme conclusion as I have re: the Sheridan approach?
JMHO
My feeling about your #2 (Dan Sheridan) option is this.....bottomline is when your are putting on the hedge "ear", you are creating a debit spread close to your short position (if your trading 5-15point spreads).
The primary effect of this would likely only be to protect for extreme moves against your short....by the time your hedge ear starts to make money, your pretty darn close to your short (or in major damge control mode) and given timing, etc you may at this point want to close the position out to limit further risk.
If your spread is OTM or FOTM, why not put a debit spread on farther away from your short position? That way if there is a move towards your short, but it's not extreme (as likely in more cased than not if your using guaging trends/TA in some way), you have a chance for both your credit and debit spreads to finish in the money?
The commisions should be the same....the only thing is you might be paying a bit more for the debit protection.
Have others came to the sme conclusion as I have re: the Sheridan approach?
JMHO
If one were to think in terms of annualized return on margin, getting out sooner for .10 vs. waiting another 20/30 days for .5 is a no brainer.
If you have a mid of -.05, could be a candidate for legging out - one triggers other. Being so far OTM, you have very little risk by attempting.
MoMoney.
If you have a mid of -.05, could be a candidate for legging out - one triggers other. Being so far OTM, you have very little risk by attempting.
MoMoney.
Quote from ryank:
Good luck on getting out at .05, I've been trying for a week with no luck.According to TOS today the mid is -.05 so maybe I can get a credit while buying back my spread
I am pretty much gonna leave it since I expect today to be somewhat flat. No real news on the calendar for Friday morning so I do not expect a SET of more than 5 points give or take. It was also a smaller position than my positions here so I am more inclined to wait out the day.