SPX Credit Spread Trader

Closed my August VIX 15.00 Calls at $4.30.

I bought 10 at $1.75 when VIX was around 16/17 or so with a nice profit of $2,550.

For those curious on the VIX call hedge follow through, The JUNE 20.00 Calls which were about $0.40 to be generous have a bid of $2.10 or profit of $1.50. Assuming my size where I would spend about $1,500 I would have done about 30 fro $1,200 and they would have a profit of $4,500. Not a major hedge but still some small cushion if an adjustment was needed or if you wanted to close.
 
Quote from optioncoach:

Closed my August VIX 15.00 Calls at $4.30.

I bought 10 at $1.75 when VIX was around 16/17 or so with a nice $2,550.

For those curious on the VIX call hedge follow through, The JUNE 20.00 Calls which were about $0.40 to be generous have a bid of $2.10 or profit of $1.50. Assuming my size where I would spend about $1,500 I would have done about 30 fro $1,200 and they would have a profit of $4,500. Not a major hedge but still some small cushion if an adjustment was needed or if you wanted to close.
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Nice trade phil, i see i was wrong in my assumption that the calls won't budge much even when DITM. Even though they are still discounted, the move was larger than i would've anticipated.
 
Does anybody see support here, gap filled, etc?

I watch the CCI and daily spx hit significant support at -100. Does fib tell us anything?
 
Quick followup to my ES vs SPX post earlier...

The number that really stands out from that post is the margin requirement for a naked short put on ES vs the same strike on SPX. The ability to sell naked without taking a huge margin whack gives you some extra choices. For instance, you can easily leg into the short side of a spread if you so choose.

Or you could just sell that thing and be done with it :eek:

There are 2 big problems with selling naked. Monster margin requirements and unlimited downside risk. Both of these problems are "solved" by using a credit spread, but how solved are they really? The downside risk in particular.

Lets look at 2 example trades. I'll stick with ES puts, since ES eliminates the margin constraints. I'm also going to pick strikes without looking at any TA.

ES ~ 1232

Trade 1: JUL ES bull put spread
-1150/+1140 0.75bid 1.75ask Margin $900
Lets just go ahead and give it the midpoint and say this spread nets 1.25 credit, with a risk of 8.75.
Its a decent credit for a 10pt spread and the short strike 80 points OTM. Well, you would have thought this was a good trade 45 days ago. With VIX in the low 20's and a 100point decline behind us, maybe its not so hot. But ignore that for illustrative purposes.
With an 1150 short, you will start getting nervous at 1170; you will start adjusting and losing money at 1160.

Trade 2: JUL ES naked put
1025 put 2.25bid 2.50ask Margin $927
The 1025 put is the lowest strike on the ES board right now. Unlike the spread, the margin for this trade will increase as the market moves toward you. For instance, the margin for a naked put ATM is $2000.

"ZOMG!!! The black swan!"

If the market drops 100 points tomorrow, your spread is at max loss. Your "unlimited risk" short is still 100 points OTM. If you choose to close your 100 point OTM short, you can do so for for a loss not that different from the spread.

Which trade lets you sleep better at night? The FOTM spread, or the WTFOTM (way the fcuk otm) short?

I'm not advocating either trade. Just pointing out an option that is available on ES but not on SPX, due to SPAN margin.
 
Quote from optioncoach:

Closed my August VIX 15.00 Calls at $4.30.

I bought 10 at $1.75 when VIX was around 16/17 or so with a nice profit of $2,550.

For those curious on the VIX call hedge follow through, The JUNE 20.00 Calls which were about $0.40 to be generous have a bid of $2.10 or profit of $1.50. Assuming my size where I would spend about $1,500 I would have done about 30 fro $1,200 and they would have a profit of $4,500. Not a major hedge but still some small cushion if an adjustment was needed or if you wanted to close.
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Phil,

Could you explain why the 15 calls were trading only for 4.3 when the VIX is well over 20 (22.54 as I write)? Is this an indication that the market feels strongly that at August expiration the VIX will be around 19.3 (15 strike plus the 4.3 you sold them for)?

Btw, I have absolutely zero experience with these new VIX options. Perhaps this explains my question.:-) Thanks.
 
Quote from cdowis:

Does anybody see support here, gap filled, etc?

I watch the CCI and daily spx hit significant support at -100. Does fib tell us anything?
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SPX touched 1220 earlier -- what I understand to be a major support area. I thought I saw it once go just a hair under, now its back up at 1224.07 12:31pm PST. Lets hope it stays here or a little higher tomorrow....:D
 
Disagree. Max loss not yet locked in on a 100 point drop. You could easily cover this spread for FAR less than the max. And the higher the IV, the greater your chances to save a significant portion of the max loss.

True the naked put is still far OTM, but with the expected HUGE IV increase, you might easily lose TWICE as much on the naked put as from the spread.

I sleep much better with the spread.

Mark


Quote from jeffm:


LEts look at 2 example trades. I'll stick with ES puts, since ES eliminates the margin constraints. I'm also going to pick strikes without looking at any TA.


Trade 1: JUL ES bull put spread
-1150/+1140 0.75bid 1.75ask Margin $900

Trade 2: JUL ES naked put
1025

"ZOMG!!! The black swan!"

If the market drops 100 points tomorrow, your spread is at max loss. Your "unlimited risk" short is still 100 points OTM. If you choose to close your 100 point OTM short, you can do so for for a loss not that different from the spread.

Which trade lets you sleep better at night?
More...
 
Quote from smilingsynic:

Phil,

Could you explain why the 15 calls were trading only for 4.3 when the VIX is well over 20 (22.54 as I write)? Is this an indication that the market feels strongly that at August expiration the VIX will be around 19.3 (15 strike plus the 4.3 you sold them for)?

Btw, I have absolutely zero experience with these new VIX options. Perhaps this explains my question.:-) Thanks.
More...

VIX options are priced off futures/variance swap not the spot VIX so the location of the spot VIX has little to do with Aug options.
 
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