SPX Credit Spread Trader

[LeonPhelps]

Quote from dagnyt:

One good reason is that Newton's first law applies here: "A body in motion tends to stay in motion, unless acted upon by an outside force."

That means: Periods of low volatility tend to be followed by more periods of low volatility (same hold true for high volatility). thus, it is usually profitable to sell premium when IV is low because - in the vast majority of cases - market volatility will continue to stay low.

Mark

Good point. Would imply to get the hell out of the way if vols increase, or in other words, tight stops. To prevent one month giving back 6-12 months of gains.

Good to have game plan for increase vol though. OC seems to go futher OTM. Some might do opposite, sell ATM. Many ways to skin cat and get skinned!

 

[El OchoCinco]

By the way, those AUG VIX 15.00 Calls I bought for $1.75 when VIX was around 16 or so are now worth $4.00 with VIX at 23.77.

SO with a VIX increase the calls have jumped nicely although still discounted due to European style and forward guestimations of volatility. Interestingly, the June 15.00 Calls are worth $5.80. So there is some initial positive results on using VIX calls as a type of hedge. The JUNE 15 calls are slightly discounted but have made a huge move over the past week or so. In fact they were about $0.75 a few weeks ago.

I post for those who were interested in seeing how VIX options will react to changes in IV. FOr right now, depiste some discounting they still seem to move significantly with VIX with respect to the ATM call options. Still a new product so caveat emptor.

 

[rdemyan]

Interesting result, Coach. Might make me eventually start doing bull puts again.

I've been steadily increasing my bear call to bull put ratio and June was the month I decided to start my 100% bear call only strategy. Mostly to obviate the black swan event but also for times like this month. Lucky for me that I did.

The huge loss I took last summer was the main reason I put my risk prevention plan to the forefront. Unfortunately, I think for many of us (including myself), it takes a substantial loss to really make us focus on risk management. I think the main reason is that once you take a big loss, you don't mind taking small losses (as part of a risk management plan) to preserve capital.

Once this is all over, I look forward to renewed discussions on risk management and hedging strategies, etc. Even though we've probably been through it all before, probably wouldn't be a bad idea to increase the focus on it.

I would like to do bull puts again, so the VIX strategy discussed ealier (on which the jury is still out) holds my interest. If it could work, it seems like a relatively inexpensive insurance.

Good luck to all!

Quote from optioncoach:

By the way, those AUG VIX 15.00 Calls I bought for $1.75 when VIX was around 16 or so are now worth $4.00 with VIX at 23.77.

SO with a VIX increase the calls have jumped nicely although still discounted due to European style and forward guestimations of volatility. Interestingly, the June 15.00 Calls are worth $5.80. So there is some initial positive results on using VIX calls as a type of hedge. The JUNE 15 calls are slightly discounted but have made a huge move over the past week or so. In fact they were about $0.75 a few weeks ago.

I post for those who were interested in seeing how VIX options will react to changes in IV. FOr right now, depiste some discounting they still seem to move significantly with VIX with respect to the ATM call options. Still a new product so caveat emptor.

 

[El OchoCinco]

Picked a good time to dive into bear call spreads .

If you decide to do bull put spreads again, just do them in small numbers so you dip your feet in slowly. No need to rush down a path that was a little rough for you in the past..

Quote from rdemyan:

Interesting result, Coach. Might make me eventually start doing bull puts again.

I've been steadily increasing my bear call to bull put ratio and June was the month I decided to start my 100% bear call only strategy. Mostly to obviate the black swan event but also for times like this month. Lucky for me that I did.

The huge loss I took last summer was the main reason I put my risk prevention plan to the forefront. Unfortunately, I think for many of us (including myself), it takes a substantial loss to really make us focus on risk management. I think the main reason is that once you take a big loss, you don't mind taking small losses (as part of a risk management plan) to preserve capital.

Once this is all over, I look forward to renewed discussions on risk management and hedging strategies, etc. Even though we've probably been through it all before, probably wouldn't be a bad idea to increase the focus on it.

I would like to do bull puts again, so the VIX strategy discussed ealier (on which the jury is still out) holds my interest. If it could work, it seems like a relatively inexpensive insurance.

Good luck to all!

 

[momoneythansens]

Unfortunately, I think for many of us (including myself), it takes a substantial loss to really make us focus on risk management.

Yes, Taleb has a good analogy for this: "It is a platitude that children learn only from their own mistakes; they will cease to touch a burning stove only when they are themselves burned; no possible warning by others can lead to developing the smallest form of cautiousness..."

It's rare for people to learn from other's mistakes.

So, IMO it's a good thing to get burned sooner rather than later...as long as one is able to get back in the game and not develop an irrational fear of the stove. To make money you still need to take on some risk which means dancing naked around the stove occasionally!

Once this is all over, I look forward to renewed discussions on risk management and hedging strategies, etc.

You have to be joking! I suspect you just want to see if ET breaks when this thread reaches 1 million views.

 

[rdemyan]

Mo:

1) Since you won't reveal which actual strategies you use, at least tell me if you've ever taken a big loss? Gimme something

2) I can think of one alternative to us discussing risk management again ad nauseum. You could employ your considerable prowess at website searching and summarizing and distill what we've discussed, oh, over the past year, down to a few pages.

Might even become a best seller!

Quote from momoneythansens:

Yes, Taleb has a good analogy for this: "It is a platitude that children learn only from their own mistakes; they will cease to touch a burning stove only when they are themselves burned; no possible warning by others can lead to developing the smallest form of cautiousness..."

It's rare for people to learn from other's mistakes.

So, IMO it's a good thing to get burned sooner rather than later...as long as one is able to get back in the game and not develop an irrational fear of the stove. To make money you still need to take on some risk which means dancing naked around the stove occasionally!



You have to be joking! I suspect you just want to see if ET breaks when this thread reaches 1 million views.

 

[zhangw]

Coach,

Thanks for your advice. I closed my 20 Jun 1225/1240 put spread @6.00, and took a loss of $7,000 this morning. I tried a couple of time at mid point, but never got filled. I still hold my 10 Jun bear put spread 1245/1255 spread (partial hedge). When I got home this afternoon, before closing, I checked the quote for the spread, bid and ask were 6.60/10.60. And the midpoint was 8.60, I put an order for selling at 7.50. It did not get fill.

I have two more questions:

Assume tomorrow’s economic new is bad, SPX will open lower, and I have to put a sell order for the spread before opening as I need to go to work at 7:30, what price I should enter, 6.60 or 7.50? I really want the hedge strategy has some profit and will reduce my loss.

If my spread both legs are in the money Friday morning after SET, and I did not close my position Thursday afternoon, what would happen to my account Monday morning?

As I said before, I feel very lucky to find this thread; even I have a big loss this month. Thank you again, Coach and all experts

 

[rallymode]

Quote from optioncoach:



It was a long time ago but I demonstrated how a huge drop in the price of the index combined with a spike in IV resulted in about 85% or some nuber close to it of the change in the price of the spread coming from delta/gamma. SO I disagree that changes in IV are painfuil for credit spreaders. THey are painful for naked option writers.

coach,

excuse my lack of diplomacy skills but i am surprised someone who's been around for as long as you have would say something so ludicrous. Of course a -delta/gamma position will suffer during an adverse market move, that's a given by definition. But to say that the spike in IV isnt causing major pain to the spread seller here is just ridiculous especially given the SPX options monopoly as well as convexity not being on your side. (when forced to get out/adjust/hedge your approaching -strike) I dont feel like going into option modeling to prove a point here or continue this silly banter. Anyone, trying to hedge/close/roll/adjust here is feeling exactly what i am talking about and is getting raped by the MM's on these adjustments. I am sure you doo too, perhaps you misspoke about the vix hitting 23+ being a non event. That's the last thing i will say on this topic for now as it seems my comments arent welcome during this emotional phase.

Happy trading.

 

[JimPos]

I just closed a 1195/1205 bull put spread this morning. I was debating whether to buy a fly but I figured the way the marketing was acting recently to just get out of the way. Prior to the market opening the mid of the b/a was .95. I put an order in for 1.10 and to my surprise I was filled at .80 which was a loss of .10 on the position(opened with the SPX at 1195). I am sure that won't happen too often.

I still have on a 123/121 bear spy hedge which I hope to make a small profit. I think the market will react sharply tomorrow on any negative CPI report and am looking to close that position on any sharp move down.

Not a market for the faint of heart.

 

[momoneythansens]

Quote from rdemyan:

Mo:

1) Since you won't reveal which actual strategies you use

The strategies I use depend on the day of the week and what I've had for breakfast!

at least tell me if you've ever taken a big loss? Gimme something

Yes I have, hence my tattoo from the stove and lesson learned!

2) I can think of one alternative to us discussing risk management again ad nauseum. You could employ your considerable prowess at website searching and summarizing and distill what we've discussed, oh, over the past year, down to a few pages.

Might even become a best seller!

Yikes! I have a life you know Lol.