SPX Credit Spread Trader

[Russ32]

How do you guys feel about buying puts a few months out and selling weeklys against them since the market is moving so much? I've been looking at XSP in particular. I'm trying it in very small numbers to see how its going to work but thought someone here may have tried it already.
Thanks

 

[labib52]

Quote from skdoyle1:

I agree completely. Would there be a good way to play the fed announcement with spreads? Straddles right before the announcement?

Try out of the money calendar spreads on the SPY, or DIA

 

[Russ32]

Quote from Russ32:

How do you guys feel about buying puts a few months out and selling weeklys against them since the market is moving so much? I've been looking at XSP in particular. I'm trying it in very small numbers to see how its going to work but thought someone here may have tried it already.
Thanks

After a websearch I saw a ToS chat log where someone asked that exact question. Looks like a viable strategy.

 

[riskarb]

Quote from Russ32:

After a websearch I saw a ToS chat log where someone asked that exact question. Looks like a viable strategy.

Bad idea. You're carrying a lot of long vol/short gamma. You want the market to sit tight and vols to increase. If the market rallies you get CRUSHED on vols. Market rallies and your short puts trade to zero, but there is no premium at the long strike to rollover. You'll chase premium and sell higher put strikes to compensate. One of the worst strategies in options if you're intent on trading neutral. Bear calendars are great if you're expecting a decline.

 

[iprph90]

Quote from riskarb:

Bad idea. You're carrying a lot of long vol/short gamma. You want the market to sit tight and vols to increase. If the market rallies you get CRUSHED on vols. Market rallies and your short puts trade to zero, but there is no premium at the long strike to rollover. You'll chase premium and sell higher put strikes to compensate. One of the worst strategies in options if you're intent on trading neutral. Bear calendars are great if you're expecting a decline.

riskarb, what is your opinion on selling ATM weekly staddles on oex, xsp, or spx and buying the wings in the front month?

 

[riskarb]

Quote from iprph90:

riskarb, what is your opinion on selling ATM weekly staddles on oex, xsp, or spx and buying the wings in the front month?

Dissected it's very similar to the calendar, but less heinous =) due to the convexity-edge [-dgamma body / +dgamma+dvega wings].

 

[iprph90]

Quote from riskarb:

Dissected it's very similar to the calendar, but less heinous =) due to the convexity-edge [-dgamma body / +dgamma+dvega wings].

will you please translate, or do i have to pay mo for that?

 

[riskarb]

Quote from iprph90:

will you please translate, or do i have to pay mo for that?

The straddle generates less deltas and loses vegas as the market moves away from neutrality -- the wings generate deltas very quickly, as well as vegas.

Time flies or diagonals are fantastic for aforementioned reasons. My only concern is substituing a symmetric-tenor [1mo x 2mo, 3mo x 6mo] with these lopsided positions -- short one week, long two month. Vertical flies are great in certain applications, but they're reduced to a path-independent payoff. There isn't much to think about. The greeks do invert on 3 moments, but it's basically a P-I bet.

Time flies carry convexity on speed and vol. Good stuff.

 

[iprph90]

riskarb, thank you!!

 

[El OchoCinco]

I thought it was time flies when you are having fun, not time flies carrying convexity...

Quote from riskarb:

The straddle generates less deltas and loses vegas as the market moves away from neutrality -- the wings generate deltas very quickly, as well as vegas.

Time flies or diagonals are fantastic for aforementioned reasons. My only concern is substituing a symmetric-tenor [1mo x 2mo, 3mo x 6mo] with these lopsided positions -- short one week, long two month. Vertical flies are great in certain applications, but they're reduced to a path-independent payoff. There isn't much to think about. The greeks do invert on 3 moments, but it's basically a P-I bet.

Time flies carry convexity on speed and vol. Good stuff.