SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Ya prevail, countrend entries off MA can produce fairly consistent results. I like to use the 50x200 ema because I feel its more robust and can be used on many timeframes and instruments. I never use indicators for longer term plays... most of the time they will get pinned at extremes for months at a time and people will be blown out. I personally use raw price action to form confluence zones that work as synergy when things line up together for my spreads and swings.
Quote from optioncoach:
Going back to my put ratio spread roots and gonna include some of the prop trades I do with them here on the ES options. (Remember ES units are * $50).
JULY 100*200 Put Ratio Spread:
BTO 100 JULY ES 1200 Puts @ 8.50 ($42,500)
STO 200 JULY ES 1175 Puts @ 5.50 ($55,00)
Net credit = 2.50 ($12,500)
Breakeven at expiration = 1147.50 on the ES for July.
The reason I like Put Ratio Spreads is that I have long deltas in front of the short puts. So if the market drops hard, I do not suffer a large paper loss since I am long deltas so I have many choices. Also I have multi-directional profit potential.
If the market stays above 1200, I make $12,500
If the market is between 1200 and ~1175 I make anywhere from $12,500 to $137,500 if market is right at 1175 at expiration.
Between 1175 and 1147.50, I make between $12,500 and $0 at expiration.
Below 1147.50 at expiration I start losing money fast.
So my profit zones are from up infinity to 1147.50. Moreover, if the market is falling, I can close out the position for a small loss before it hits the short strike or short futures into the drop to hedge moves to 1175 and below.
I can also buy back the extra 100 short puts if the cost is covered by the credit and I feel that the ES will stay bearish. I then convert to a bear call spread which I can close for a profit or small loss and get out with little damage.
The position is susceptible to HUGE IV spikes since I am short 2x as many shorts as I am long but time decay works more in favor as well.
I was trading put ratio spreads before I moved into credit spreads and with ES and SPAN/risk-based haircut, I figured I would move back in. This way I do not fear black swans too much since I have more adjustment options AND, a move to my long or short strike close to expiration is actually a lottery ticket.
I will update you on this trade as it progresses.
Ok. Then I am curious, why Ansbacher and some others I have heard about in passing, swear by SP options. Is there a benefit to trading SP with a broker versus ES eletronically? I'm surprised to hear that SP options have less volume than ES options. Shocked in fact. Do you mean the small number of SP options that may be traded eletronically? Or the pit options?
Coach
Would you please post what your next trade or hedge would be if the index took an event drop below your break even point of 1147 within a short time after placing the trade.
My analysis shows that if the index droped to 1130 by the end of June, the position with an 8% IV increase would show a paper loss of $375K and a paper loss of $275K if it dropped to your break even point of 1147 in the same time frame.
While I realize there are long deltas infront of the shorts, it still appears that having douple the shorts presents a substantial down side risk in an event or quick down move situation. In this down move...the IV will substantially increase, thereby also increasing the paper loss with double the shorts.
Would you please post what your next trade or hedge would be if the index took an event drop below your break even point of 1147 within a short time after placing the trade.
My analysis shows that if the index droped to 1130 by the end of June, the position with an 8% IV increase would show a paper loss of $375K and a paper loss of $275K if it dropped to your break even point of 1147 in the same time frame.
While I realize there are long deltas infront of the shorts, it still appears that having douple the shorts presents a substantial down side risk in an event or quick down move situation. In this down move...the IV will substantially increase, thereby also increasing the paper loss with double the shorts.
Quote from optioncoach:
Going back to my put ratio spread roots and gonna include some of the prop trades I do with them here on the ES options. (Remember ES units are * $50).
JULY 100*200 Put Ratio Spread:
BTO 100 JULY ES 1200 Puts @ 8.50 ($42,500)
STO 200 JULY ES 1175 Puts @ 5.50 ($55,00)
Net credit = 2.50 ($12,500)
Breakeven at expiration = 1147.50 on the ES for July.
The reason I like Put Ratio Spreads is that I have long deltas in front of the short puts. So if the market drops hard, I do not suffer a large paper loss since I am long deltas so I have many choices. Also I have multi-directional profit potential.
If the market stays above 1200, I make $12,500
If the market is between 1200 and ~1175 I make anywhere from $12,500 to $137,500 if market is right at 1175 at expiration.
Between 1175 and 1147.50, I make between $12,500 and $0 at expiration.
Below 1147.50 at expiration I start losing money fast.
So my profit zones are from up infinity to 1147.50. Moreover, if the market is falling, I can close out the position for a small loss before it hits the short strike or short futures into the drop to hedge moves to 1175 and below.
I can also buy back the extra 100 short puts if the cost is covered by the credit and I feel that the ES will stay bearish. I then convert to a bear call spread which I can close for a profit or small loss and get out with little damage.
The position is susceptible to HUGE IV spikes since I am short 2x as many shorts as I am long but time decay works more in favor as well.
I was trading put ratio spreads before I moved into credit spreads and with ES and SPAN/risk-based haircut, I figured I would move back in. This way I do not fear black swans too much since I have more adjustment options AND, a move to my long or short strike close to expiration is actually a lottery ticket.
I will update you on this trade as it progresses
You are correct that a surge in vega will have an initial negative effect on the ratio position. If your modeling shows an immediate loss of $3,500 then it is certainly is small and manageable given the large risk. Especially given I have a $12,500 credit remember? So if I can close out the position for a $3,000 loss I still pocket $9,500. Unless you were factoring in the credit then it is still a small and managable loss.
If I still feel that the index will not move below 1150, I will still hold the position since credit spreads also have wild paper loss swings with moves in the index. What has to hold up is my overall view on where the market is going. If the spike in IV accompanied a move to 1200 and I feel we bottomed after the news, I will hold since I am now in the lottery ticket zone and will stay if I feel the market will hold between 1150 and 1200.
If the ES moves to 1200 and starts moving lower, then I couldl add some short futures in small increments, go long the 1150 Puts to convert to a butterfly using the credit to finance the cost as much as possible, look at the cost of buying back the 1175 Puts, add long puts at other strikes, or simply get out of the position.
Thanks for the look into the 3*2. I will take a look at it. I like the 2*1 due to the nice net credit so if the market never moves lower I still make a nice profit. I will take a look at the comparisons and see how it looks.
If I still feel that the index will not move below 1150, I will still hold the position since credit spreads also have wild paper loss swings with moves in the index. What has to hold up is my overall view on where the market is going. If the spike in IV accompanied a move to 1200 and I feel we bottomed after the news, I will hold since I am now in the lottery ticket zone and will stay if I feel the market will hold between 1150 and 1200.
If the ES moves to 1200 and starts moving lower, then I couldl add some short futures in small increments, go long the 1150 Puts to convert to a butterfly using the credit to finance the cost as much as possible, look at the cost of buying back the 1175 Puts, add long puts at other strikes, or simply get out of the position.
Thanks for the look into the 3*2. I will take a look at it. I like the 2*1 due to the nice net credit so if the market never moves lower I still make a nice profit. I will take a look at the comparisons and see how it looks
.I daytrade futures... PURE technical indicators 
Quote from rallymode:
didnt have you figured out for such a techie phil
Describe it in general and we can fill in the blanks maybe
I meant the volume electronically from what I see.
I am sure Ansbacher likes the SP because it is $250 a point and with millions in funds to manage , he would rather go for the bigger product. I also assume he has his own person in the pit working his fills on SP. For me, ES works just fine.
I am sure Ansbacher likes the SP because it is $250 a point and with millions in funds to manage , he would rather go for the bigger product. I also assume he has his own person in the pit working his fills on SP. For me, ES works just fine
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