SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
I have done quite a few naked trades using ES put options over the past 4 weeks. They were more of a play on vega than anything else. I will probably keep doing these on every vix spike and cover on the bounce or vix retreat. For apparent reasons, I go 15-20% OTM and hold for a few days as i am not comfortable staying naked longer than that. You can easily keep 50-70% of the credit in only a day or two if you time the bottom right.(falling knives anyone?) Risk still huge in my book even at 20% below market. '87 comes to mind, so please dont abuse SPAN
I agree. SPAN is just a sharper knife to kill yourself with. Stay within same SPX risk margin guidelines you were using if you trade ES.
On a less seppuku note...
Someone asked about the margin escalation as a sold futures option moves against you. The margin to trade a single ES contract is about $2k. The margin to sell an ATM ES option is also about $2k, which makes sense. So as the market approaches your short strike, the margin moves up from ~$1k to ~$2k. As your margin requirement rises, if you don't have funds available to cover the margin, your broker will either call for more money (the dreaded margin call), or they will begin closing your positions to free up margin.
Never had a margin call with IB, but I assume they would automatically start closing positions. What more can you expect for $1.65 per contract commission?
Quote from jeffm:
On a less seppuku note...
Never had a margin call with IB, but I assume they would automatically start closing positions. What more can you expect for $1.65 per contract commission?
This is one gripe that some people have with IB - the automatic liquidation of positions in a margin call situation.
Other brokers typically provide a few days.
Hopefully one will not be in a position to find out. Hara-Kiri.
BTW, not sure on your ES margin figures.
The portfolio approach of SPAN means you can go long PUTs, short ES (assuming naked PUTs to start with) to have a positive impact on margin requirements a la Phil's Prego fly(TM) approach i.e. there are risk management options that are just not possible with Reg-T.
MoMoney.
That is certainly true. I was referring to the most dire of circumstances, where you put on the trade and then can't (or won't :eek: ) make any adjustments as the market steamrolls toward you.
By the way, there is an article in this month's Futures magazine that talks specifically about ES vs SPX options, and the benefits of SPAN margin. Don't rush out to by the mag. Its all stuff we have covered here. But the timing was interesting. Perhaps signalling the top of the trend for put sellers? LOL
I'm not sure how to start up a new free subscription, but if you google a bit you should be able to find out how to get Futures magazine for free. If you're interested...
Apologies for being slightly off topic, but I'm here and I figured there were some learned posters and its a related topic. The Question; What is a good site, software or service to determine the largest one day upward moves, intraday and overnight, in the S&P futures? We all know the downside move could be a gap or move down of up to 24 percent and a VIX spike up to 160. (Which is why we don't write naked puts.) But what about an upside, if you were, say naked calls. What is the 24-hour risk there? What were the top ten upward moves? 8%? 10%?
The article also pimps ER2 options over SPX and ES. Here are some numbers from today's market:
ES ~ 1254, VIX 16.6
15% OTM is 1065, so I'll drop that to 1050
JUL 1050P 0.85 bid 1.00 ask, but that ask is only 1 contract. Probably more like 0.85 x 1.15.
Contracts offered by the MMs on each side, 300
Volume today on the 1050P, 532 contracts
Margin to sell 1 naked ~ $1000
Margin will vary, but this is good enough for our little demo.
Credit to sell 1, 0.85 * $50 = $42.5
Profit on margin 4.2%
ER2 ~ 686
15% OTM is 583, so lets look at the 580P
JUL 580P 0.90 x 1.30
Contracts offered by the MM on each side, 75
Volume today on 580P and 585P, 0 contracts
Margin to sell is also ~ $1000
Credit to sell 1, 0.90 * $100 = $90
Profit on margin 9%
The reason of course is that ER2 is $100 per point, compared to $50/pt for ES. Yet the margin is almost the same for both.
you probably are aware of this but just in case, there are overnight and day limits of how far the sp can move. currently the overnight limit is 2.5 percent and the day limit is 5 percent. this does not guarantee liquidity but does help in understanding what is possible and gives you time to maneuver, or at least attempt to.
most here in this thread would have been out of their positions before the real '87 crash as the market was declining for a week before the gap on monday.