as you get familiar with the ES options you will see that in these cases you may be better off going flat on your position by neutralizing the SPX shorts with ES options instead of doing an offset. There are various ways to go flat and lock in the gain you already have but you still have to evaluate them as they present themselves.
SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
as you get familiar with the ES options you will see that in these cases you may be better off going flat on your position by neutralizing the SPX shorts with ES options instead of doing an offset. There are various ways to go flat and lock in the gain you already have but you still have to evaluate them as they present themselves.
Prevail,
You can play them for VEGA.... or Delta... or a combination of both.
My suggestion might be to sell the next month (Aug) option at where your downside target will be at expiration for that month. ... and purchase the following month puts two-four strikes out from that... A simple check of a risk profile graph at August expiration should give you a relative visual of the position)
You also want to place this trade at relatively low vols. So.. when VIX was at 13 a few days ago... the Aug 1225, Sept 1200p were my choice. (This choice may have been a little aggressive... but we have other diagonals lower... to unbrella the position).
You do NOT want to place this trade when VIX is relatively high.... this is trade is set up to LONG Vega. In Fact, this is a nice time to use Mo's & Mavericks suggestion and apply the short Calendar or Mav's Proprietary X-Tree strategy.
A few interesting notes.... as the VIX is rising here, the current diagonal is really interesting. (1200 Julyp/Aug 1175p) The July 1200p just isn't going up too much because of expiration, but the August 1175p is skyrocketing over the past few days.... this is the huge advantage over the credit spread. The value of the position has more than doubled in profit and has the potential as expiration to quadruple, depending on the VIX.
The disadvantage of the diagonal strategy is if the market moves up the entire month... VIX drops.... etc.... small but reasonable profit can be attained.
This is why I like placing the trade at low volatility levels... gives you small (2-5%) profits even if it moves away from you.
Now... here's an interesting play... MAVERICK would love this. We're looking to leave our 1175 Aug put in play and sell the back month SEPT puts against them with vix this high. (Short Calendar as Mo would explain). It's looking like a natural roll if VIX statys here at these levels for the next few days.
Hope this answers your questions...
M~
You can play them for VEGA.... or Delta... or a combination of both.
My suggestion might be to sell the next month (Aug) option at where your downside target will be at expiration for that month. ... and purchase the following month puts two-four strikes out from that... A simple check of a risk profile graph at August expiration should give you a relative visual of the position)
You also want to place this trade at relatively low vols. So.. when VIX was at 13 a few days ago... the Aug 1225, Sept 1200p were my choice. (This choice may have been a little aggressive... but we have other diagonals lower... to unbrella the position).
You do NOT want to place this trade when VIX is relatively high.... this is trade is set up to LONG Vega. In Fact, this is a nice time to use Mo's & Mavericks suggestion and apply the short Calendar or Mav's Proprietary X-Tree strategy.
A few interesting notes.... as the VIX is rising here, the current diagonal is really interesting. (1200 Julyp/Aug 1175p) The July 1200p just isn't going up too much because of expiration, but the August 1175p is skyrocketing over the past few days.... this is the huge advantage over the credit spread. The value of the position has more than doubled in profit and has the potential as expiration to quadruple, depending on the VIX.
The disadvantage of the diagonal strategy is if the market moves up the entire month... VIX drops.... etc.... small but reasonable profit can be attained.
This is why I like placing the trade at low volatility levels... gives you small (2-5%) profits even if it moves away from you.
Now... here's an interesting play... MAVERICK would love this. We're looking to leave our 1175 Aug put in play and sell the back month SEPT puts against them with vix this high. (Short Calendar as Mo would explain). It's looking like a natural roll if VIX statys here at these levels for the next few days.
Hope this answers your questions...
M~
Something interesting just happened.
I changed my trade to close the credit spread for $0.15.
So buy August 1345/1360 for $0.15. Profit potential of $0.55 in about a week. EDIT: This is 3.67% return on margin.
Then, I thought, what the hell, call ToS and have them call down to the floor to see what it would really cost me to get out.
The ToS guy called down and came back with $0.30 possibly $0.25.
I said thanks, hung up and within 2 seconds was filled at $0.15.
Makes one wonder!!!?
I changed my trade to close the credit spread for $0.15.
So buy August 1345/1360 for $0.15. Profit potential of $0.55 in about a week. EDIT: This is 3.67% return on margin.
Then, I thought, what the hell, call ToS and have them call down to the floor to see what it would really cost me to get out.
The ToS guy called down and came back with $0.30 possibly $0.25.
I said thanks, hung up and within 2 seconds was filled at $0.15.
Makes one wonder!!!?
I have 200 july 1210-1200 bull puts on the SPX. Stressin a bit, I knew we had downside but thought we would grind a little more before dropping over 3% in 3 days! I got a week to go and lookin to adjust now. I did have some call spreads that i just closed for nice profits and still have 100 spy partial hedges. As of now, to put on a prego fly ie buy 1230-1210 put spread will cost me about 50,000. I like your put ratio idea but that will cost me about 5 million buying power and I dont have that in this account. We will stop in the 1205- 1210 area at least for a few days but I dont want to leave this position on if we move lower....
Any thing else I can do?
Thanks
Any thing else I can do?
Thanks
Murray:
What kind of debits are you payong on the put diagonals you are talking about. Just a per contract idea. As a premium seller it takes some time to doing debits lol. But I like the idea of entering the diagonals on the put side when VIX is low and entering put ratio spreads when the VIX is high
What kind of debits are you payong on the put diagonals you are talking about. Just a per contract idea. As a premium seller it takes some time to doing debits lol. But I like the idea of entering the diagonals on the put side when VIX is low and entering put ratio spreads when the VIX is high
A little curious as to why you put the trade on since on June 22 you were quite the bear. One option is the vertical roll to Aug and if/when market goes up you can roll out of it much cheaper than if you have to close now. However with only 4 trading days there is certainly room for the market to go up and theta will be doing its thing big time.
Yes the put ratio spread adjustment is not a recommended one for everyone since it does have significant margin implications. Too advanced and risky for the casual player. Margin makes it undoable for most and should be avoided by most.
Where are your SPY strikes for the puts?
1219 is the previous low for SPX and we might never get there since we are hovering at around 1235 so you still have some cushion and those partial hedges should be helping a tiny bit. I would say that if 1225 is touched you might want to consider rolling down one more time if it happens on Wed or Thu. I think theta will help greatly on any day where we pull back or move sideways and you have 4 more trading days to go. THe PREGO might be too pricey right now and is not needed really at this stage.
Another option if you just need a smidgen of room is to buy back the spread and sell 400 1200/1195 spreads. You will have rolled the spread lower and still use the same margin and might be able to do the roll for a net credit. I do not have the prices in front of me but just look at it on paper. Play it out to see the credit and new lower strike position.
Where are your SPY strikes for the puts?
1219 is the previous low for SPX and we might never get there since we are hovering at around 1235 so you still have some cushion and those partial hedges should be helping a tiny bit. I would say that if 1225 is touched you might want to consider rolling down one more time if it happens on Wed or Thu. I think theta will help greatly on any day where we pull back or move sideways and you have 4 more trading days to go. THe PREGO might be too pricey right now and is not needed really at this stage.
Another option if you just need a smidgen of room is to buy back the spread and sell 400 1200/1195 spreads. You will have rolled the spread lower and still use the same margin and might be able to do the roll for a net credit. I do not have the prices in front of me but just look at it on paper. Play it out to see the credit and new lower strike position.
Thanks a bunch coach and Richard. Ya, I was quite the bear wasnt I? I still am, just been playing the bounces and got cocky on this one with 2 weeks to go... My spy hedge is at 123 so its not going to do much for 200k risk. I thought the prego is a scenario you take when very close to expiration? We are oversold at the moment but there is a massive amount of stops below the last low and they want to run them pretty bad is my guess. Whether we get a washout and move higher or continue lower... I dont know thats why I need to do something. I guess I will watch the close today and assess. I just dont like being this close to my shorts going into the weekend with no protection....
Rally:
LOL. How do you get the lottery ticket though. Is it because assuming the SPX is at 1075 at expiration the ES value will be higher and expire worthless so you will have nice juicy SPX puts to close for a profit?
LOL. How do you get the lottery ticket though. Is it because assuming the SPX is at 1075 at expiration the ES value will be higher and expire worthless so you will have nice juicy SPX puts to close for a profit?