SPX Credit Spread Trader

[rallymode]

Quote from trkarl:

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

lol i made a few math errors, it was a busy day i am sorry.

I am not sure that i am the right person to comment on position sizing since i dont do FOTM credit spread and i am assuming that's what you are doing. But if i were to do one i'd stick to the 10% max risk and go from there. I start with the max risk and build on that. If i end up with 1 lot at the end then it is a 1 LOT.

 

[rallymode]

Quote from Heatheranderson:

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?.

Heather, i am not sure i understand what you mean with the diversification point? I understand the fact that if you only use 10% of your account for FOTM credit spreads that leaves you with 90% of funds sitting there unused. I know it's not lucrative trading, so i suppose for a person who only does FOTM credit spreads they might risk more than 10%, 20-30% would be my guess. I do think that risking half or more is pushing it with those low r/r strats. I hope you dont find this offensive, i am just giving you my opinion.

 

[Heatheranderson]

I understand the fact that if you only use 10% of your account for FOTM credit spreads that leaves you with 90% of funds sitting there unused.
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For some reason i thought your were doing 5 different SPX FOTM positions 10% each(total 50% capital for credit spreads).My Bad.

 

[cdowis]

Liquidated my Jun 1290/1300 call, 1200/1175 put for a loss of 160 + commission. Yesterday after the market broke above 1285.

This is my second position for Jun, so will wait on July.

Here is the history of the trade: Sold a 1200/1175 put at 190 and the market went down. I was worried so sold the 1290/1300 call at 230 while it was falling. So my call side was too close and not very much premium.

Whipsaw city.

I suppose the lesson for me is to place both positions on at the same time. Any suggestions would be very very welcome.

 

[rallymode]

Quote from Heatheranderson:

I understand the fact that if you only use 10% of your account for FOTM credit spreads that leaves you with 90% of funds sitting there unused.
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For some reason i thought your were doing 5 different SPX FOTM positions 10% each(total 50% capital for credit spreads).My Bad.

Heather,

i am not saying risking 50% is bad for a person who does SPX credit spreads exclusively. I think coach risks something like that also if i am not mistaken. I rather frontload the max risk into my position as i am not good containing risk under pressure(when market moves against me). If you are confident that you can hedge properly then 50% is a good number which will still leave you with half your money after a major error. I am a much better trader when i open/close trades when i WANT to not when i HAVE to so assume max risk at entry.

 

[Cache Landing]

Quote from cdowis:

Liquidated my Jun 1290/1300 call, 1200/1175 put for a loss of 160 + commission. Yesterday after the market broke above 1285.

This is my second position for Jun, so will wait on July.

Here is the history of the trade: Sold a 1200/1175 put at 190 and the market went down. I was worried so sold the 1290/1300 call at 230 while it was falling. So my call side was too close and not very much premium.

Whipsaw city.

I suppose the lesson for me is to place both positions on at the same time. Any suggestions would be very very welcome.

I have a suggestion...

Don't use a bear call spread to help hedge the failing bull put spread. You will always end up opening both positions at precisely the wrong time.

You opened the original bull put with somewhat poor timing, as evidenced by the fact that the underlying fell thereafter. This wasn't the mistake. The purpose of an FOTM spread is to give yourself some cushion. Underlying bottomed out about 50-points above your short. You'd have been fine just waiting around for it to get much closer and handling the damage from there.

The mistake was in chasing the bear call spread. Your only option was to sell closer to the money for higher premium as a FOTM spread wouldn't protect against a continued bearish move. Selling CTM bear calls after a big move down isn't ever really a smart thing to do. The better choice would've been to wait for one of two things to happen.

1) Underlying continues down to within 20-points of your short and you are forced to adjust.

2) Market bounces back up and you're provided with a much better entry into a bear call without tying up additional margin.

If you are going to hedge your bull puts, it should probably be done via an instrument that doesn't carry so much -gamma exposure and also isn't inhibited in terms of profit potential. OC generally advocates using long SPY/XSP puts.

 

[Crucis]

Quote from Cache Landing:

If you are going to hedge your bull puts, it should probably be done via an instrument that doesn't carry so much -gamma exposure and also isn't inhibited in terms of profit potential. OC generally advocates using long SPY/XSP puts.

Cache, a question.

I'm still learning how to properly hedge. Why would using a long SPY put be better than a long SPX put?

I have two SPX Bull Put spreads, JUN SPX 1225/1235 and JUN SPX 1200/1210. I hedged them with a JUN SPX 1245 Put.

 

[JimPos]

Coach:

I always say that good things happen to good people. The best of luck on your new endeavor and thanks again for this journey you have been kind enough to take us on this past year.


Since you are all my online friends/family in a dysfunctional way I wanted to share my recent news. I officially gave notice and in about 6 - 8 weeks, will leave the legal profession for good and trade full-time from home and manage money. For those who think this is easy, it has taken a few years to get to this level and the real work is actual starting so we shall see [/B][/QUOTE]

 

[El OchoCinco]

I have an LLC and a partnership. The partnership choice was just because it took nothing to form (a handshake) with my partner and just obtaining a taxpayer ID. LLC was because more structure and division of goodies was needed. LLCs are the best in my opinion since they are so easy and have less requirements than C-corp.

Quote from Cache Landing:

What a novel idea! LOL

Already havea couple silent partners, sorry Rally.

Coach,
Do you operate under and LLC?

 

[El OchoCinco]

My diversification comes not from different underlyings but different ways I trade it. For example I trade options month to month on the SPX and daytrade futures on ES, YM (Dow) and ER2 (Russell). My diversification is in different timeframes and indexes and approaches. Since I generate income (hopefully lol) with futures daytrading I do not need to grab huge premiums month to month in SPX spreads so I will tend to be more conservative at times.

I like to recommend to people not to go over 50% when doing credit spreads. Of course some months I jump to well above that but it is through your own personal experience and skill how you determine when to adjust that for your own personal preferences.

Unfortunately there is no cookie cutter except to say no one strategy or product should be 100% of your portfolio.

Quote from Heatheranderson:

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?.