SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Well, hindsight is 20/20. I was able to close my 1230/1240 yesterday (I was actually trying to cancel the order and I was filled right before I clicked on the button). While I am glad to be out of that position (look for the rally now 
) I was thinking maybe I should have turned it into a butterfly, cost would have been roughly the same and it would have at least given me the chance to profit if the market was lower at June expiration.
Oh well, now that the Memorial Day rally has started maybe I can put on position to profit from it and make back some money!
) I was thinking maybe I should have turned it into a butterfly, cost would have been roughly the same and it would have at least given me the chance to profit if the market was lower at June expiration. Oh well, now that the Memorial Day rally has started maybe I can put on position to profit from it and make back some money!
On this board, I hear quite often references to 1 /2 sigma, etc..
I'm aware this is associated with stnd. deviations ...2 sigma I believe would then captute 67% of all moves for a particular time period, 3 sigma would be 92% (is this right?)
But does someone on the board now how to calculate it and explain what reference points they use?
For example, if we feel a temp. support is in here at 1257, how would you calcualte a target for 2 and 3 sigma for JUN expir to the upside/downside from this point?
Thanks
I'm aware this is associated with stnd. deviations ...2 sigma I believe would then captute 67% of all moves for a particular time period, 3 sigma would be 92% (is this right?)
But does someone on the board now how to calculate it and explain what reference points they use?
For example, if we feel a temp. support is in here at 1257, how would you calcualte a target for 2 and 3 sigma for JUN expir to the upside/downside from this point?
Thanks
Sigmas are only computed on one side. So 1 sigma is one sigma on the up side and on the down so that is 67% and 2 sigma is 95% and 3 sigma is 99%.
Sigmas are usually generated directly from the ATM IV and time to expiration with no reguards to support or resistance.
If you did choose to open a bear call spread, I don't think 1305 would be too close. I would actually go even closer but I wouldn't hold through expiry. I would plan on exiting on the 13th.
I found that yesterday was actually better, esp. when the market was down. Why? Because the VIX at one point was getting very close to 20, so this provided good premium.
With the SPX at 1251 I got the 1320/1335 bear call filled at $0.60 when the mid was at $0.65. The VIX was I believe over 19 and approaching 20 at the time.
Today with the SPX at almost 1264, the mid on this same bear call is $0.25 with the VIX at around 16.
At least in my credit spread experience (about a year) we've seen primarily relatively low VIX numbers (except for recently). But this real-world example just reinforces the effect of volatility on options pricing.
Of course I had other reasons for placing the trade since my FOTM strategy tries to select short strikes that I believe will stay at least 10 to 15 points above the SPX at any point till June expiration. Hopefully this will be the case otherwise I'll get out of the way or adjust.
With the SPX at 1251 I got the 1320/1335 bear call filled at $0.60 when the mid was at $0.65. The VIX was I believe over 19 and approaching 20 at the time.
Today with the SPX at almost 1264, the mid on this same bear call is $0.25 with the VIX at around 16.
At least in my credit spread experience (about a year) we've seen primarily relatively low VIX numbers (except for recently). But this real-world example just reinforces the effect of volatility on options pricing.
Of course I had other reasons for placing the trade since my FOTM strategy tries to select short strikes that I believe will stay at least 10 to 15 points above the SPX at any point till June expiration. Hopefully this will be the case otherwise I'll get out of the way or adjust.
I could explain how to calculate 1/2/3 st. deviations but it would be easier to simply use analysis software to do it. You'd waste a lot of time trying to compute it all the time. Two quick solutions.
1) If your broker's platform is good then it should have that info for you. I use TOS mainly and I love it.
2) You can use the delta of the strike you are looking at to determine an approximation of its likelihood of expiring ITM. Given that 1 sigma is 67%, 2 sigmas about 95%, and 3 sigmas about 99%.