SPX Credit Spread Trader

trkarl · Jun 2, 2006

Quote from Heatheranderson:

I opened 20 SPX 1350/1360 July bear call spreads for a credit of $0.70.Even with fed meeting and a cause for a pause, i doubt we will reach 1350 in 6 weeks.

Heather, coach, rally, cache, I have only been trading spreads now for about 9 months. My question is when you open a position like this how do you decide how many to do? For example Heather would 20 be the maximum you want for this trade or is it a certain percentage of your account at risk? I have about 51k to trade with and usually try to start with a small maybe 1 - 5% risk amount to start testing the waters on each trade. If it moves against me I tend to try to roll up with it and add to it. How do you traders decide the amount of contracts to trade at a time?

T

Heatheranderson · Jun 2, 2006

I have started following coach's money management method.only allocate 50% to credit spreads...

rallymode · Jun 2, 2006

Quote from trkarl:

Heather, coach, rally, cache, I have only been trading spreads now for about 9 months. My question is when you open a position like this how do you decide how many to do?

It really depends on how far you are willing to go with your short strike. Apparently, the further you go the bigger size you must trade to collect a predetermined $ amount collected as a credit. Some FOTM guys aim for a certain % on risk each month. So trading big size becomes necessary if you want to bring in income each month that will cover any insurance paid as hedges.

I look at the risk first and worry about the return later. I open my positions from the bottom up. I mean, i look at the max risk i am willing to take per position as a part of my port value and go from there. Once you have a firm grip on risk, the rewards sort of start to come in on their own.

Whether you do OTM or FOTM, its a good idea to be mindful of the risks first and not fall in love with the credits you receive.

I personally wouldnt risk more than 10% in any one trade/strategy even if its a very high probability one. So with a 50k account i'd be risking 5k per position and aiming for $300-400. So that would be roughly 5 lots on 10 pointers. Doesnt look lucrative at all but thats my opinion.

trkarl · Jun 2, 2006

Rally you edit your posts too quick LOL. I went to quote the 10 lot portion and when I did it changed. But anyways do you put the total amount of lots on at first or is this the max goal for the position. forgive me if I seem to be over analyzing the trade but it is important to me to understand your thinking process as you people seem to be extremely successful at this. Thanks.

Tim K

Heatheranderson · Jun 2, 2006

Rally
I know everyone is comfortable with their own ways. i would like to get the coach's opinion also on this.
Isnt the whole point of trading the index because of the built in diversification it offers?. If you put only 10% in june 1330/1340 bear calls and when the index goes up you close it and open another 10% 1350/1360 bears call, isnt it the same as rolling out?.

nlslax · Jun 2, 2006

Quote from Cache Landing:

That's just over 1sigma out. Further than I was going to go if it makes you feel better.

Cache -
I targeted (but didn't get... :mad:

) the July 1350's today. I show that strike as 2 standard deviations out.

I must have missed it, but what is the difference between a Sigma and a Std Dev? Which do you feel is more relevant?

Thanks.

damon_achey · Jun 2, 2006

Quote from nlslax:

Cache -
I targeted (but didn't get... ) the July 1350's today. I show that strike as 2 standard deviations out.

I must have missed it, but what is the difference between a Sigma and a Std Dev? Which do you feel is more relevant?

Thanks.

You need to double check your dates.

June expiration I see 1 sigma ~= 1320, 2 sigma ~= 1350
July expiration I see 1 sigma ~= 1350, 2 sigma ~= 1405

Cache Landing · Jun 2, 2006

Quote from damon_achey:

You need to double check your dates.

June expiration I see 1 sigma ~= 1320, 2 sigma ~= 1350
July expiration I see 1 sigma ~= 1350, 2 sigma ~= 1405

Correct.

And to answer the original question...

1sigma = 1 stand. deviation the two terms are interchangeable.

nlslax · Jun 2, 2006

Quote from damon_achey:

You need to double check your dates.

June expiration I see 1 sigma ~= 1320, 2 sigma ~= 1350
July expiration I see 1 sigma ~= 1350, 2 sigma ~= 1405

Damon -
You're absolutely right---->User error.
I was in a rush when I ran the numbers and didn't make that "slight" adjustment to the calculation.
Thanks.

nlslax · Jun 2, 2006

Quote from Cache Landing:

Correct.

And to answer the original question...

1sigma = 1 stand. deviation the two terms are interchangeable.

While I don't post much, I am always reminded of the value of this thread.
Thanks again.