SPX Credit Spread Trader

[blure2]

rdemyan and Richard;

Thank you for you replies. To answer your question about the RUT, rdemyan, I have had good luck with getting orders filled. In fact, better luck than with the SPX. So far, when I have chosen to close a position, I have not had any problems either. I hope that that continues.

Additionally, I looked at month over month point changes in RUT, RUI, SPX and OEX, going back to 12/93 and found the RUT to have had far fewer large swings, 50 points or greater, than the SPX. Seven vs. 36, in fact. Although, I do agree that recent volatility has favored SPX.

I would like to have better luck with the SPX as there is greater liquidity and more of you folks to learn from.

Presently, support is at 668. Under normal circumstances I would not be feeling squimish. However, the geopolitical situation is a wild card. Should the May low of 670 serve as support than I think I'll come out ahead.

But just in case I want to have my alternative plan in place Sunday night in order to respond accordingly Monday, Tuesday, etc.

Thank you again, and further advise is most welcome.

Bob
Bob

 

[RichardRimes]

Quote from blure2:

rdemyan and Richard;

Additionally, I looked at month over month point changes in RUT, RUI, SPX and OEX, going back to 12/93 and found the RUT to have had far fewer large swings, 50 points or greater, than the SPX. Seven vs. 36, in fact. Although, I do agree that recent volatility has favored SPX. alternative plan in place Sunday night in order to respond accordingly Monday, Tuesday, etc.


Bob
Bob

Not to quibble but wouldn't a better comparison be % swings rather than points. I thought the RUT swings in percentage terms are higher?

 

[nlslax]

Quote from blure2:

rdemyan and Richard;

Thank you for you replies. To answer your question about the RUT, rdemyan, I have had good luck with getting orders filled. In fact, better luck than with the SPX. So far, when I have chosen to close a position, I have not had any problems either. I hope that that continues.

Additionally, I looked at month over month point changes in RUT, RUI, SPX and OEX, going back to 12/93 and found the RUT to have had far fewer large swings, 50 points or greater, than the SPX. Seven vs. 36, in fact. Although, I do agree that recent volatility has favored SPX.

I would like to have better luck with the SPX as there is greater liquidity and more of you folks to learn from.

Presently, support is at 668. Under normal circumstances I would not be feeling squimish. However, the geopolitical situation is a wild card. Should the May low of 670 serve as support than I think I'll come out ahead.

But just in case I want to have my alternative plan in place Sunday night in order to respond accordingly Monday, Tuesday, etc.

Thank you again, and further advise is most welcome.

Bob
Bob

For those more experienced in trading SPX...
I believe the RUT is subject to "SET" at expiration like the SPX. The symbol is RLS. If so, wouldn't blure2 be better off closing his positions early instead of just letting them expire?

 

[rsflint]

After being out of the market for July, on 7/14 started the following bearish call spread on the SPX:

1300/1310 for $1.00 credit

The pickup in VIX really helped with the premiums. I was looking at some bullish put spreads but the volume seemed to be pretty small for the strikes I was comfortable with and I was a little concerned how far the market was going to keep dropping.

I'll be on the lookout for some FOTM bullish put spreads on Monday.

Rich

 

[rdemyan]

Rich:

I recently closed out some August bear calls and am looking to put on more. How did you select 1300 as your short?

Quote from rsflint:

After being out of the market for July, on 7/14 started the following bearish call spread on the SPX:

1300/1310 for $1.00 credit

The pickup in VIX really helped with the premiums. I was looking at some bullish put spreads but the volume seemed to be pretty small for the strikes I was comfortable with and I was a little concerned how far the market was going to keep dropping.

I'll be on the lookout for some FOTM bullish put spreads on Monday.

Rich

 

[blure2]

Not to quibble but wouldn't a better comparison be % swings rather than points. I thought the RUT swings in percentage terms are higher?

Good question. Perhaps looking at in percentage terms is a better way. The data I found proves you to be correct: RUT 1.0094 vs. 1.0078 for the SPX. What caught my eye was that I could usually go 60 points higher than current and 70 points lower, and be at or better than 90% probability of expiring OTM. And the RUT has only met or exceeded 60 points 5 times since 12/93.

I wasn't, however, able to do that with the SPX. But correct me if I'm wrong as it has been a while since I crunched through that stuff.

Bob

 

[RichardRimes]

Quote from blure2:

Good question. Perhaps looking at in percentage terms is a better way. The data I found proves you to be correct: RUT 1.0094 vs. 1.0078 for the SPX. What caught my eye was that I could usually go 60 points higher than current and 70 points lower, and be at or better than 90% probability of expiring OTM. And the RUT has only met or exceeded 60 points 5 times since 12/93.

I wasn't, however, able to do that with the SPX. But correct me if I'm wrong as it has been a while since I crunched through that stuff.

Bob

Now the question becomes...on the RUT is there any premium 60 pts higher and 70 lower? When I first started doing the SPX my best risk/reward and comfort zone was a 100 pt wingspan on the condor. By trying to time it sometimes I got 125 which is good but I wasn't getting the premium I wanted. For July on a new July contract (not the rollover from June) it turned out to be 100 (short 1195Put... short 1295call) which should be fine. However given the volatility increase overall I'm looking at a wider wingspan for August.

As far as jumping around, during the very high vol periods it wasn't unusual for the SPX to go up/down 50-75 pts in a day:eek: For me I would rather have low vol's even if it comes with low premium. I haven't done any backtesting or much in the way of looking back. I operate on the theory of it works until it doesn't and play the hand your dealt. If things get too unmanageable ( I start losing) then I'll be looking around for something else or change what I've been doing.

Like RD I've (twice) tried to do a credit spread on the RUT but didn't get filled so gave up. However if you have had success I think you should stay with it. You obviously are very comfortable and familiar with it.

 

[blure2]

Quote from RichardRimes:

Now the question becomes...on the RUT is there any premium 60 pts higher and 70 lower? When I first started doing the SPX my best risk/reward and comfort zone was a 100 pt wingspan on the condor. By trying to time it sometimes I got 125 which is good but I wasn't getting the premium I wanted. For July on a new July contract (not the rollover from June) it turned out to be 100 (short 1195Put... short 1295call) which should be fine. However given the volatility increase overall I'm looking at a wider wingspan for August.

As of the close on Friday, based on midpoints, one should be able to get the following:

RUT Aug 580/590 Bull Put Spread @$.6
RUT Aug 770/760 Bear Call Spread @$.45

As you can see, 100 pts OTM on the put and 80 on the call wing. Deltas are -0.7 and .06 respectively. Not too bad based on the historical performance of the index.

When I got into this, about 14 months ago, my goal was to gross 8% per month. Figuring 25% for taxes and commissions I wanted to net 6% each month.

I spent about 9 months virtual trading at OX and went live last Feb. February, March and April went along like clock work. May I got 3.5% and June was breakeven.

I should mention that I got cold feet in May and June and closed out profitable positions sooner then I should have. But that is better than closing out too late. Lesson learned.

I have been running on a 28 days to expiration cycle, but as has been pointed out here recently, I think that the premiums are better on a 45/15 day cycle. The added bonus of being out at expiry is a benefit as well.

But I am here to learn and I am not married to anything. I am currently reading Schwager's book on TA and McMillan's Options As a Strategic Investment. And I haven't scratched the surface at all.

Bob

 

[rsflint]

Quote from rdemyan:

Rich:

I recently closed out some August bear calls and am looking to put on more. How did you select 1300 as your short?

rdemyan thanks for the question. I forgot to mention my 1300/1310 position is an August expiration.

The way I selected it was took 2 sigma (standard deviations) of closing data and this number is 70. So I added this to the last number I saw traded ~1236 which would be 1306. Since the moneymakers only had 10 point intervals after the market dropped, I decided to go a hair more aggressive and take the 1300 short. Normally I go about 1.5 sigma.

What numbers are you looking at for your August 2006 bullish put spreads?? Last I checked the volumes were pretty low.

 

[rdemyan]

Rich:

I only trade bear calls now. I put on some AUGUST positions last week that after the big drop this week I was able to sell and retain over 75% of the credit.

So still have about 5 weeks until August expiration and I'm looking to go again with some August bear call positions.

If I use the following formula to calculate a standard dev:

stock price * volatility * square root of days to exp/365

I get:

1236 * .1549 * sqrt(33/365) = 57.43

where volatility is taken at an option strike of 1235.

Multiplying by 2 for two SDs yields 114.9

115 plus 1236 is 1351 so a short strike at 1350 meets the two SDs.

Did I err in my calculation?

Quote from rsflint:

rdemyan thanks for the question. I forgot to mention my 1300/1310 position is an August expiration.

The way I selected it was took 2 sigma (standard deviations) of closing data and this number is 70. So I added this to the last number I saw traded ~1236 which would be 1306. Since the moneymakers only had 10 point intervals after the market dropped, I decided to go a hair more aggressive and take the 1300 short. Normally I go about 1.5 sigma.

What numbers are you looking at for your August 2006 bullish put spreads?? Last I checked the volumes were pretty low.