SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
early morning I opened
XEO 565/575 : .75 (mid was at .90)
Although I did not want to trade bull put spreads, the market was
oversold and the trend was reversing.
However, I noticed that if I had sold the 560/565 a few days ago, I could have got more. I guess volatility was higher then.
So, when the trend changed-up, vol dropped, credit dropped.
I plan on opening a higher number of bear calls 600/605 (when xeo is around 590) so that the net credit will be +ve no matter how low we go.
Comments anyone?
(I also have some DJX calls. Although I got the trend right, I
opened when vol was high. So, the index has moved up, but my calls have not moved much.)
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Another thought:
Instead of opening SPX June SPX 1320/1330 bear calls, I am thinking of opening July 1320/1330 (at top of trading range) and closing it around June expr.
1320 is outside a 1std. dev move for June.
July credit is around 3.00, June is .40.
If we do move to 1310, the july posit has enough time to adjust higher, if no move, the credit should shrink..........
STRATEGY:
1) Open next month out bear call spreads, at strikes 10 points or so away from a 1 std. deviation move in the current month.
2) Close around expiration of current month. Adjust another 1 std. dev out, if index moves 1 std. dev in current month.
Again, what do you'll think of this strategy?
Thanks
XEO 565/575 : .75 (mid was at .90)
Although I did not want to trade bull put spreads, the market was
oversold and the trend was reversing.
However, I noticed that if I had sold the 560/565 a few days ago, I could have got more. I guess volatility was higher then.
So, when the trend changed-up, vol dropped, credit dropped.
I plan on opening a higher number of bear calls 600/605 (when xeo is around 590) so that the net credit will be +ve no matter how low we go.
Comments anyone?
(I also have some DJX calls. Although I got the trend right, I
opened when vol was high. So, the index has moved up, but my calls have not moved much.)
-----------------------------------------------------------------------------------
Another thought:
Instead of opening SPX June SPX 1320/1330 bear calls, I am thinking of opening July 1320/1330 (at top of trading range) and closing it around June expr.
1320 is outside a 1std. dev move for June.
July credit is around 3.00, June is .40.
If we do move to 1310, the july posit has enough time to adjust higher, if no move, the credit should shrink..........
STRATEGY:
1) Open next month out bear call spreads, at strikes 10 points or so away from a 1 std. deviation move in the current month.
2) Close around expiration of current month. Adjust another 1 std. dev out, if index moves 1 std. dev in current month.
Again, what do you'll think of this strategy?
Thanks
Selling these OTM index spreads certainly feels safer than writing covered calls - and it is indeed safer. But, you must be very careful.
1) This strategy 'earns 3-5% month after month' ONLY when the markets behave.
2) When writing covered calls, If everything goes badly, you could easily lose 20% of your account in one month.
3) If things go badly when selling OTM spreads, you could easily lose more than 50% of your account. And a total wipeout is not outside the realm of possibility.
The problem with this investment strategy is the feeling of invincibility it instills in investors who are first getting acquainted with this strategy. If you sell as many spreads as possible each month, you are setting yourself up for a disaster. Not trying to dissuade you, just suggesting you keep a significant portion (at least 50%) of your investable assets in safer vehicles.
[ I am so pleased that I have discovered an option trading strategy that earns 3% -5% month month after month. This is so much better than selling covered calls which I have done in the past with little success. [/B][/QUOTE]
1) This strategy 'earns 3-5% month after month' ONLY when the markets behave.
2) When writing covered calls, If everything goes badly, you could easily lose 20% of your account in one month.
3) If things go badly when selling OTM spreads, you could easily lose more than 50% of your account. And a total wipeout is not outside the realm of possibility.
The problem with this investment strategy is the feeling of invincibility it instills in investors who are first getting acquainted with this strategy. If you sell as many spreads as possible each month, you are setting yourself up for a disaster. Not trying to dissuade you, just suggesting you keep a significant portion (at least 50%) of your investable assets in safer vehicles.
[ I am so pleased that I have discovered an option trading strategy that earns 3% -5% month month after month. This is so much better than selling covered calls which I have done in the past with little success. [/B][/QUOTE]
As one who has experienced what Mark is talking about, I couldn't agree more. The feeling of invincibility is a killer. Also, you might start to expect that you have to make so much per month and that's that. This will cause you to put on bad positions and you'll be reluctant to exit them when you should (until the size of the loss finally forces the issue).
I recommend that you paper trade some positions (very easy to do if ToS is your broker) that will get you into trouble and start practicing adjustments.
While this provides practice, it is not like the real thing. When you have to adjust for real, emotions enter the equation. If you've read this journal you can see that virtually all of us have sweated it out at some point in time and most of us probably made some mistakes because of our emotions. That's why Coach stresses having an exit or adjustment plan ready ahead of time if trouble occurs. You want to feel confident that you can handle getting out or adjusting and then moving on with your trading. Sometimes the right thing to do is to just take a small loss and live to trade another day. One of the main purposes of the plan, IMHO, is to keep emotions out of it as much as possible. Depending on how volatile the market is, it can be a lot harder than you imagine.
Good luck with your trading.
I recommend that you paper trade some positions (very easy to do if ToS is your broker) that will get you into trouble and start practicing adjustments.
While this provides practice, it is not like the real thing. When you have to adjust for real, emotions enter the equation. If you've read this journal you can see that virtually all of us have sweated it out at some point in time and most of us probably made some mistakes because of our emotions. That's why Coach stresses having an exit or adjustment plan ready ahead of time if trouble occurs. You want to feel confident that you can handle getting out or adjusting and then moving on with your trading. Sometimes the right thing to do is to just take a small loss and live to trade another day. One of the main purposes of the plan, IMHO, is to keep emotions out of it as much as possible. Depending on how volatile the market is, it can be a lot harder than you imagine.
Good luck with your trading.
[/B][/QUOTE]
Quote from Cache Landing:
So Aardvark, looks like you got your verdict.
had to leave just after the verdict...just got back and read your quote...however Texas is not the only state that screws the little guy...Mississippi the great state for class action lawsuits with jurors in the worst rated state for education. Ultimately those judgements only make a few ppl (and of course the lawyers) rich at the expense of the investor. Many many flaws in the system but at least justice did rule the day today
yes except its 1370..did you want them?
What I did yesterday (early am) was roll down my 1360's to 1340's for .25 cents and now am looking to sell 1320 or 1325's... gave up on the idea of a B-fly..will sell the 1370's if given the chance. The call's this month didn't cost much...so I will make very little maybe only BE however the put side is where I'm making the dough. I seldom leg in on the call side for all the reasons (skew...spread and low price) This month I was going to try for a B-fly that's why I did it...just isn't panning out. I did buy some calls on the NDX and may leg into a B-fly tomorrow..the NDX is pretty insane.I suspect there is a typo in your spread. Perhaps you mean 565/560?
Anyway, if the mid was at .90 my observation is that you may have been very generous to sell it at .75.
It is not uncommon to get filled right at the mid point on XEO spread trades. Certainly shouldn't need to give up more than 5c. With the XEO, the markets are a lot tighter than quoted.
Generally not a good idea to try and trade options in the first half an hour of the day IMO.
Did you consider long premium e.g. XEO calls (ignoring the DJX calls), bull vertical?
If you were worried about buying decreasing IV then there are always other ways of getting long deltas without buying volatility e.g. long ES, long SPY or even, shock, horror short PUTS (if you were sure of the reversal) etc.
Shorting an OTM credit spread only 21 days out may come back to haunt you unless you look to take profits at .25
It seems that you have a fairly good idea in your head where XEO is going to go over the coming days. In order to cover any losses on the bull put spread if we crash, you'd have to sell around 7 times as many bear call spreads. Is that what you meant?
If you complete the iron condor the inner strangle will be 565/600 which is only 35 points wide. Considering the fact that XEO moves 10 points+ in one day on occasion, that is a fairly tight range with what seems to be around 10:1 risk/reward.
If you are confident in your range prediction, perhaps you might consider the following iron fly or equivalent: 565/585/605. It has a 1:1 risk/reward albeit with a small probability of maximum reward and profit zone of only 575-595. However, it has trading opportunities and allows you to use 1/5 the position size (read: five times less risk) of your proposed iron condor with a good chance (1 in 3) of getting similar returns or better (up to double).
Food for thought.
Actually, on the SPX, this might not be a completely bad idea given the nature of slippage and settlement issues there are to deal with. Opening spreads for .50 on the front month means you are almost forced to hold till expiration to get a decent return - this can cause bad decision taking if one is poorly disciplined IMO. Slippage and residual value due to minimum price increments etc. deter one from closing these spreads early. However, if the spread was sold for $3, suddenly giving up 10c for closing the spread later is not such a big deal. You obviously won't get as much decay on your spreads as you would otherwise have done if it was the front month but hand in hand with theta you also avoid the worst gamma.
I would probably suggest closing by June expiration is too soon unless you benefit from deltas. Holding for about 30 days to get a decent amount of decay would seem to be reasonable. You will end up having overlapping positions.
I believe Riskarb advocated something like open 45 days out and close 15 days out...so not a million miles away from what you have suggested.
Good luck!
MoMoney.