SPX Credit Spread Trader

Hindsight is always used incorrectly to punish one for following a trade plan. The market could have easily gone from 1220 to 1200 and paused for the SET. If you have a risk plan, follow it 10 out of 10 times. If the market tanked, you would all be saying how great it was to get out before more damage. Now one should not be saying how bad it was to get out because the market reversed. If you knew 100% it was gonna reverse, then no one should have adjusted at all.

Some of you are using more aggressive strikes than me where the profit is higher, but the losses are higher too on closings or adjustments. I was just tallying the math from my adjusted positions and when all is closed tomorrow, I will probably have a loss of $3,000 or so- less than 1% on risk.

Think ahead how much loss you would bear before bailing and what hedges you could put on to reduce the pain somewhat. Maybe 5% of risk capital is a good cap, maybe 10%. Self analysis and review is required and will help you find the zone.

Quote from skanan:

On 06/13 I closed out all my losing positions when SPX was around 1228.

BTC SPX 1250/1235 $9.8 , loss $890
BTC SPX 1250/1235 $9.4 loss $940-$90=$850
BTC SPX 1235/1245 $6.4 loss $540x2 = $1080
BTC SPX 1235/1245 $6.2 loss $620-$100 = $520

Total loss $3340.

These wipes out about 2-3 months of profit. My loss will reduce after expiration due to the profit on short call about $1000.

My trading plan was probability bet and the loss would fit within my risk limitation. However, somehow, I decide to reduce the lost by closing them earlier when there was a lot of value left in the long side. Now SPX is back around 1248. Had I stayed with my trade plan, I would not loss this much.

So, it looks like I paid dearly for not following the trade plan :-(

I'm not blaming anyone but myself. I'll take off for a while until I feel better.

-Nick
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Worth repeating...

Quote from rallymode:

I left 2% of port value on the table also but i feel no regrets.

Obviously many support levels were broken which mostly invalidated the reason why you opened the trade in the first place. In this situation protecting your risk is number 1 priority. Worry about the profits with your next trade before the reasons get invalidated again. There will be plenty of chances to make profits but only few to protect yourself from the inevitable big hit.

If you learn to put risk before profits all the time even when you arent threatened, you will be a much more consistent trader who will survive longer than their counterpart.

I hope that was helpful.
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Got filled on the call side of my diagonal around 1350 (SP futures):

B Aug 1330
S Jul 1310 @ 60 debit

Will avoid the mistake I made on the last trade (thanks for your advice). If market goes to 1290, will probably look to liquidation rather than going scared into the put leg.
 
That's why I posted my thoughts in the first place, it's very theraputic to write down the way you feel about a trade and have people validate the actions you know were correct.

My gut's feeling a bit better now...thank's rally, coach and others....

....my account is also thanking you for uttering the words "Risk Mgmt" as well.....


Quote from optioncoach:

Hindsight is always used incorrectly to punish one for following a trade plan. The market could have easily gone from 1220 to 1200 and paused for the SET. If you have a risk plan, follow it 10 out of 10 times. If the market tanked, you would all be saying how great it was to get out before more damage. Now one should not be saying how bad it was to get out because the market reversed. If you knew 100% it was gonna reverse, then no one should have adjusted at all.

Think ahead how much loss you would bear before bailing and what hedges you could put on to reduce the pain somewhat. Maybe 5% of risk capital is a good cap, maybe 10%. Self analysis and review is required and will help you find the zone.
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Quote from burrben:



My gut's feeling a bit better now...thank's rally, coach and others....
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no prob, just wait until you go through this same situation a few more times, after that you will feel nothing whatsoever, and will be just adding to your market experience database. :)
 
Quote from piccon:

Hi Piccon,

Sorry to hear about your losses this month. tough month for everyone. I am intrigued by your hedging strat. that you mentioned below.

In chatting with you previously, I think I have gotten a flavor for how you might structure/implement your strat. (or atleast something similiar) I have outline something bleow that I think makes some sense to me below. (and from the sounds of it, help you prevent a large loss this month) Does this make sense to you (or others). Am I in the ballpark?

For example, and in an ideal scenario where you expect a reversal to the north, you would wait for your technical indicators to be oversold.....then by a SPY call a point or so out of the money....as the market makes it's turn and heads past your call, you then SELL another call a point or two away for the same price that you bought the call... (you've now got a no cost hedge to protect a bear call spread)....about this time the market has now, per technical indiactors, moved into (or is close to) an overbought condition....it is here that your then place your bear call spread 30-40 points or so out of the money with your zero-sum "debit" spread as a hedge.

If the market drops, then you collect your credit on the call spread (your hedge cost you nothing). If the market keeps moving past your short call hedge and closes b/f it hits your short strike on the spead, you collect both your profit from the spread and the "debit" hedge...a double pay day. And lastly if the market keeps moving up, you have your hege to ameloirate any loss from an early close on your spread.


Comments piccon/others??




I opened:
1) Bought 20 IWM (RUT i-shares) 72 PUT @0.75
Sold 20 IWM 69 @0.75 =>
Debit spread cost 0.00 for max profit of 6K

2) Bought 20 SPY 126 @1.50
Sold 20 SPY 124 @1.60
=> 0.10 credit Max profit 4K

3) Bought here and there a total of70 IWM 71PUT@ 1.96
Sold 70 IWM 70PUT @1.88. I panic I could get more for it

Debit Spread cost: 0.08 Max profit 7K

4) Bought 20 SPY 125 PUT @1.50
This afternoon Sold 20 SPY124 PUT@1.35
Debit Spread cost: 0.15 Max profit 2K

I also sold all my calls spreads last Friday when the Big Thursday Hammer failed.

I closed 27 SPX 1310/1320@0.10 debit
I closed 15 RUT 760/770 @ 0.10 debit

And the opened closer to the money call spread

I open 27 SPX 1275/1285
I opened 15 RUT 1220/1230

So I got 5K for the new Call spreads.

So my hedges value became:

4.2K + 6K +2K + 4K + 7K=24.2K (possible) could get 22K from it

I took big loss on SPX 1250/1240 (6.5K)

Loss on RUT 700/690 (7K)

Loss on RUT 690/680 (2K)

Total loss of 15.5K. I could have avoided the big loss but I was still greedy.

I haven't counted but all my calls spreads will give money.

I am still nursing SPX 1215/1205 and RUT 670/660

I am closing them tomorrow anyway

Possible profit of 6 to 7K (or more). I am not going to complain


Conclusion: I will have some profit this month because I started early with my protection strategy.

I wanted to explain to you how I was able to salvage my skin this month. This market is dangerous; So people need to be careful and make sure you use at least 25 to 30% of your credit to protect your Short strikes.

Sorry for being too long.

Look for picconjune to come back to find this post [/B]
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:) :)
 
Scienter,

I didn't loose money this month. My hedges covered all my Spread loss and I end up with 7 to 9K profit (still to be determined).

I have to take some time to understand your question and then I will reply.

Piccon

Quote from scienter:

:) :)
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Scienter,

Lately and especially in this market, It's easier to predict a top reversal than bottom. My indicators work better on overbought conditions. You can go 40-50 points above the point at which there is an overbought signal and most of the time you will be safe but detecting a bottom even with oversold condition, I wouldn't encourage you following this strategy in the next 4 months.

The market may remain oversold for a long time. Bill Clinton is the best at picking bottom (Monica).


What I think could work best, is to open your Bull Put (below Support) or Bear Call (above resistance); then you can buy the SPY PUT or CALL at 30 points from your short Strike. This has given me the best protection so far.

Don't be affraid to spend up to 40 -50% from your credit to protect your Short( Queen). You can make money on both (Spreads and hedge).

MHO


Quote from scienter:

:) :)
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I probably need to rewrite these to make them clearer:

http://www.elitetrader.com/vb/showthread.php?s=&postid=971374#post971374

http://www.elitetrader.com/vb/showthread.php?s=&postid=1095103#post1095103

Double pay day = "Convergence gains"

Quote from scienter:
If the market drops, then you collect your credit on the call spread (your hedge cost you nothing). If the market keeps moving past your short call hedge and closes b/f it hits your short strike on the spead, you collect both your profit from the spread and the "debit" hedge...a double pay day. And lastly if the market keeps moving up, you have your hege to ameloirate any loss from an early close on your spread. :) :)
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Coach, why did you go with Maverick's firm after he accused you of all that stuff on this board without having a clue about the real you? Do you trust someone who mouths off like that without knowing what he's talking about?

Quote from optioncoach:

That's my firm :)

Isn't it funny how Mav is in person v. here LOL......
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