Quote from momoneythansens:
I suspect there is a typo in your spread.
Yes it was a typo, the spread was 565/570. (not 565/575)
The mid was between .8 and .9.
I could not get filled .5 below the mark. Even .10.....
The bid was .3 and ask was 1.5.
Difference = 1.2. I got filled at approx. 40% of the difference between the ask and bid, added to the bid.
Generally not a good idea to try and trade options in the first half an hour of
the day IMO.
Next time I won't. I just saw the trend change and reacted to it.
Did you consider long premium e.g. XEO calls (ignoring the DJX calls), bull vertical?
Never traded debit spreads. I need to paper trade these to get a feel of how
ATM, ITM and OTM spreads change.
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.
Never thought of this.
Next time I will buy SPY, or maybe short puts with a FOTM put for cover.....
Shorting an OTM credit spread only 21 days out may come back to haunt you unless you look to take profits at .25
Was planning on closing when the trend reversed again.
around 7 times as many bear call spreads. Is that what you meant?
Yes. actually the ratio was about 1:8. But, may be less as the index climbs.
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
I try to be just outside the trading range of the XEO and will close only if the range is broken.
That's why I try and sell only when the XEO is oversold/overbought. This month I cannot see a clear range on the downside, so will not
hold put spreads for long.
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).
This is a great suggestion. I will paper trade this strategy.
I think it will work great if the range is clearly defined. When XEO starts to trend, I'm not
sure I know when/how to adjust. Do you just sell a further OTM spread converting the butterfly to an
iron condor?
What are your rules for adjusting the iron butterfly?
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.
Hoping to benefit from deltas. But 30 days sounds good for decay. I paln to avoid overlapping positions by only opening next month spreads on SPX.
Thanks Mo. for your detailed response
