SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
On SPX, the margin required for a 1 lot 1150/1140 credit spread is $10 regardless of how far away the underlying is i.e. your $10 will be tied up until the spread is released.
On ES, for a comparable spread, the margin will be somewhat lower and is calculated based on how much risk the position is deemed to have on a daily basis and subject to minimums.
Both spreads obviously have the same maximum loss. However, over the lifetime of the positions, you will require less performance bond set aside for ES positions than for the SPX position. This is manifested as a better return on investment. Then there are possible cross-margin and hedging benefits too that have been discussed before.
In any event, depending on your disposition, prudence might dictate that you maintain neccessary equity to cover the full loss on the spread regardless of whether SPAN requires you to do so or not. There is room for abuse of SPAN or risk-based margin systems but there is also room for much better risk management.
The basics of how SPAN margin works from the horses mouth.
Given the ever increasing liquidity of ES options, there are really not many reasons left to still be using SPX options IMO. You can hardly be any worse off on b/a spreads
Better still is MM haircut if you can get it....but if you predominantly trade SPX then this is a good place to start.
MoMoney.
On ES, for a comparable spread, the margin will be somewhat lower and is calculated based on how much risk the position is deemed to have on a daily basis and subject to minimums.
Both spreads obviously have the same maximum loss. However, over the lifetime of the positions, you will require less performance bond set aside for ES positions than for the SPX position. This is manifested as a better return on investment. Then there are possible cross-margin and hedging benefits too that have been discussed before.
In any event, depending on your disposition, prudence might dictate that you maintain neccessary equity to cover the full loss on the spread regardless of whether SPAN requires you to do so or not. There is room for abuse of SPAN or risk-based margin systems but there is also room for much better risk management.
The basics of how SPAN margin works from the horses mouth.
Given the ever increasing liquidity of ES options, there are really not many reasons left to still be using SPX options IMO. You can hardly be any worse off on b/a spreads
Better still is MM haircut if you can get it....but if you predominantly trade SPX then this is a good place to start.
MoMoney.
Enough to protect my Short. Good judgement is required. It's better small profit than huge loss (I guess).
I try to use a minimum of 30% of my net credit.
But you also need to make sure you use the other cards that are avilable to you like complete the condor to gather additional credit; also try to close profitable spreads for 0.10c -0.15c debit and open other one closer to the money for additional credit also.
I try to maximize my credit potential based on the trend of the market.
Be creative. Use common sense and make the strategy work in your favor
Hope this helps
I try to use a minimum of 30% of my net credit.
But you also need to make sure you use the other cards that are avilable to you like complete the condor to gather additional credit; also try to close profitable spreads for 0.10c -0.15c debit and open other one closer to the money for additional credit also.
I try to maximize my credit potential based on the trend of the market.
Be creative. Use common sense and make the strategy work in your favor
Hope this helps
Coach,
I liquidate all my positions. It was a wild ride.
Here is an update of my monthly and YTD performances:
June ROM (return on margin): 12.87%
YTD ROI (Return on investment): 32.4%
In May I made $0; I lost $0. I was too conservative. This time I will be conservative but I will trade the market.
Now I am trying to combine the benefits of Credit and Debit Spreads. I am doing both (On the Put side) only.
If I wasn't trying to protect (Hedge) my Call Spreads, I could have been up 15% or more this month.
Good luck for July.
I liquidate all my positions. It was a wild ride.
Here is an update of my monthly and YTD performances:
June ROM (return on margin): 12.87%
YTD ROI (Return on investment): 32.4%
In May I made $0; I lost $0. I was too conservative. This time I will be conservative but I will trade the market.
Now I am trying to combine the benefits of Credit and Debit Spreads. I am doing both (On the Put side) only.
If I wasn't trying to protect (Hedge) my Call Spreads, I could have been up 15% or more this month.
Good luck for July.
There have been quite a few posts discussing the use of ES options with credit spreads but i think we forgot to answer perhaps the most important question on many peoples' minds.
Am i going to get a price improvement trading spreads using ES options instead of SPX options? It has been my experience that the further away you go with your strikes the harder it becomes to get a price improvement. The reason is simply because of the way each is traded. In the SPX you can get a fill at mid point +/- 10% of spread under normal circumstances, in the ES you will not, unless there's alot of interest in those strikes the day you want to open. Having said that, to get a price improvement, once you go past 5% OTM it would take a miracle.LOL
I quoted two spreads for you guys, you can be the judge yourself. The ES spread is 5 points higher due to the premium built into the SEP futures. While the price is the same, with the ES, there's no mid point fills unless someone splits the two contracts simultaneously and is taking the opposing side of your trade providing atleast the size you are seeking and given the relatively lower liquidity, that doesnt happen very often.
Am i going to get a price improvement trading spreads using ES options instead of SPX options? It has been my experience that the further away you go with your strikes the harder it becomes to get a price improvement. The reason is simply because of the way each is traded. In the SPX you can get a fill at mid point +/- 10% of spread under normal circumstances, in the ES you will not, unless there's alot of interest in those strikes the day you want to open. Having said that, to get a price improvement, once you go past 5% OTM it would take a miracle.LOL
I quoted two spreads for you guys, you can be the judge yourself. The ES spread is 5 points higher due to the premium built into the SEP futures. While the price is the same, with the ES, there's no mid point fills unless someone splits the two contracts simultaneously and is taking the opposing side of your trade providing atleast the size you are seeking and given the relatively lower liquidity, that doesnt happen very often.
Rally,
Did you say you're using IB for your Broker?
I'm looking at teaming up with Vtrader, (Maverick), and just wondering how you like IB and the platform.
M~
I quoted two spreads for you guys, you can be the judge yourself. The ES spread is 5 points higher due to the premium built into the SEP futures. While the price is the same, with the ES, there's no mid point fills unless someone splits the two contracts simultaneously and is taking the opposing side of your trade providing atleast the size you are seeking and given the relatively lower liquidity, that doesnt happen very often.
[/B][/QUOTE]
Did you say you're using IB for your Broker?
I'm looking at teaming up with Vtrader, (Maverick), and just wondering how you like IB and the platform.
M~
I quoted two spreads for you guys, you can be the judge yourself. The ES spread is 5 points higher due to the premium built into the SEP futures. While the price is the same, with the ES, there's no mid point fills unless someone splits the two contracts simultaneously and is taking the opposing side of your trade providing atleast the size you are seeking and given the relatively lower liquidity, that doesnt happen very often.
Love it, wouldnt trade it for anything on the retail level. It takes some getting used to when you first start but then it provides a very efficient way of quoting/trading. In my opinion, IB is the closest to prop you can get on the retail level. Charts suck but i dont daytrade so they arent too important to me.
Quote from momoneythansens:
On SPX, the margin required for a 1 lot 1150/1140 credit spread is $10 regardless of how far away the underlying is i.e. your $10 will be tied up until the spread is released.
On ES, for a comparable spread, the margin will be somewhat lower and is calculated based on how much risk the position is deemed to have on a daily basis and subject to minimums.
Both spreads obviously have the same maximum loss. However, over the lifetime of the positions, you will require less performance bond set aside for ES positions than for the SPX position. This is manifested as a better return on investment. Then there are possible cross-margin and hedging benefits too that have been discussed before.
In any event, depending on your disposition, prudence might dictate that you maintain necessary equity to cover the full loss on the spread regardless of whether SPAN requires you to do so or not. There is room for abuse of SPAN or risk-based margin systems but there is also room for much better risk management.
The basics of how SPAN margin works from the horses mouth.
Given the ever increasing liquidity of ES options, there are really not many reasons left to still be using SPX options IMO. You can hardly be any worse off on b/a spreads
Better still is MM haircut if you can get it....but if you predominantly trade SPX then this is a good place to start.
MoMoney.
not to butt kiss.....i could not have ever
dreamed of a better reply. it covered the facts and some of the possibilities. thank you
yes rally, i see how my question could be hard to follow. i liked mo's answer so much , because i knew basically the correct answer, but was not able to articulate it to myself and the board. the big picture tough is, es options are better imo, but they are easier to abuse (just like futures)