[Random speculation alert] Agree, high probability that any significant move today can be ignored or be an opportunity to scale into positions that fade the move. [/Random speculation alert]
SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
[Random speculation alert] Agree, high probability that any significant move today can be ignored or be an opportunity to scale into positions that fade the move. [/Random speculation alert]
This is the issue:
http://www.futuresmag.com/library/2006/06/0606_toc.html
Unfortunately I have no link to this article without subscription/registration.
oops...Hi Andy, not a paper trade. And yes I did have (rolled to July) June 1245 puts which after rolling have been agressively selling calls to finance the rolling down of the (now) July 1245puts. Today I did roll to July 1235. I'll update in a week or so my progress on the trade.
Quote from optioncoach:
Compare the risk and the margin requirements of a credit spread v. a naked call and the similarities end pretty fast. Do not go lightly into naked options based on that kind of comparison. As the market moves against you, the real differences are painfully obvious.
Phil,
it is also advisable to look over adjustment strategies for naked options, the same as you do with Verticals ?
They are risky, but very few traders sell them directly and wait. All others establish hedge positions, convert them, adjust etc.
Also - naked puts are not the same as naked calls ? The risk of S&P gaping up is much lesser then going other way....
Yes, I would only consider doing naked calls. Also, the margin requirement for naked ES options would be substantially less than SPX (SPX isn't even a consideration because the margin ,is so high); but I'm not sure how much.
Let's see, I remember Mo providing a post on calculating margin for naked ES options. Now if I could just find it.....
Let's see, I remember Mo providing a post on calculating margin for naked ES options. Now if I could just find it.....
Ratio spreads work better with puts on ES and SPX due to the put skew. Calls have a negative vol skew which makes it harder to get a nice credit OTM. So I only do them with puts. SPX margin requirements are too high to do put spreads.
Vols are more relevant for ratio spreads than credit spreads definitely. Although vols do not have to be high to take nice credits for ratio spreads, it sure helps. With vols low, the market moving lower and vols increasing will push the short puts higher and since you have twice as many as the long puts, it is an issue to consider.
Vols are more relevant for ratio spreads than credit spreads definitely. Although vols do not have to be high to take nice credits for ratio spreads, it sure helps. With vols low, the market moving lower and vols increasing will push the short puts higher and since you have twice as many as the long puts, it is an issue to consider.
I still say that for most people HERE, naked options alone (i.e. unless part of a ratio spread which still has its risks) should be avoided, espeiclly on ES where lighter margin requirements just gives you a katana to cut yourself versus a steak knife. that is why simpyl comparing the credit of a spread v. a short strike is not seeing the entire position and I just wanted to throw my caution out there for people.
We're going to have to agree to disagree on this point.
I have successfully quadrupled my account in 3 months using a naked premium selling strategy: suggest folks HERE sell as many naked PUTs 1 sigma OTM as margin allows if they want to replicate my success.
Under no circumstances convert to a limited risk position or hedge with underlying as that severely reduces profit potential and ruins the probabilities not to mention the effort/reward ratio of approx 12.4:1 (averaged) is not favorable IMO.
The key to the strategy is to use the WTF chart study (only available on E-signal at present but being implemented on MedVed Quotetracker) but...here's what really makes it work:you have to use (80,12,3) rather than the default values. When all three plots converge on WTF, you have a 99.8% probability that if you write PUTs at that juncture, you will be profitable.
To be more precise, I have found the optimal strike selection to be based on 0.964 sigmas. For the calculation, the volatility to be used should be between the front month ATM IV and the next month ATM IV. This is where it gets tricky. To be accurate, you will need to do some kind of interpolation using a bezier curve/cubic spline methodology. However, the payoff is worth it as my results clearly demonstrate.
Good luck!
MoMoney.