Rdyeman, I do manage money for friends and relatives, but am not a registered CTA. I am a FULL-time trader, can never get enough of the market. My main focus is index futures because I find they are highly correlated with most equities. For example, I daytrade the ES and ER and when the index is trading into a intraday buy swing zone I will sometimes buy a basket of stocks as well to gain some diversity and stronger % bounces. I also swing trade the FX and commodities, and have developed a few auto systems, but the russel is my passion. I am always changing my trading instrument to whats flowing nicely, so I find I am fairly diversified most of the time as well.
SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
I don`t believe that particular reports change market, but believe that economy is primary figure so is the long-term market sentiment. Putting this way reports are secondary and their readings and intensity bring the picture which has ben already established in economy.
This is not about how high crude oil can go, but what the market reaction is. We have had few serious inflation fears during recent years, but no such reaction.
I am assuming you are trading the cash and not the russell futures for your spread. I usually anaylze the ER2 but they are fairly similar. Looks like you are sitting fairly good for friday. As you can see we got some nice support in the 657 area and major support in the 641 area. Today odds and probabilities are calling for a range reduction day with a small up close. The only wild card is the middle east. Any breaking news could drastically reduce the odds of this roadmap. Hang tight, we are oversold, and in a position for a reasonable rally.
Well let's look at the numbers assuming you sold 10 SPX spreads and bought 10 of the SPY spreads. You would take in a credit of $1,000 and spend $350 on the hedge for a net of $650, while risking $8,700 ($10,000 margin minus $650 credit and $650 max hedge profit).
In reality you would be risking less than $8,700 if managed right because you would not let the spread get to the max loss beofre closing. Also remember the fact that the hedge will also not be full value until expiration so the numbers are not exactly right when reality is factored in.
The strategy is most profitable of course when SPX/SPY is between 1270 and 1300, but still profitable at a respectable % if the index is below 1270.
The hedge in this case only makes a small dent in the potential losses but it does help. I think you may get better hedging from outright long calls in SPY but it will cost more of course.
There is nothing wrong with the strategy but the hedge should not necessarily be a fixed contract amount in relation to the SPX. I usually look for a % of my premium I am willing to spend and then look for the strikes/product that will give me the most bang for my hedged buck. I will do spreads for hedges if they are OTM and cheap but the long options offer the most delta assistance.
So play around with other hedge choices and with not even putting on a hedge at all unless the market starts to look like it is coming for your short strike perhaps.
In reality you would be risking less than $8,700 if managed right because you would not let the spread get to the max loss beofre closing. Also remember the fact that the hedge will also not be full value until expiration so the numbers are not exactly right when reality is factored in.
The strategy is most profitable of course when SPX/SPY is between 1270 and 1300, but still profitable at a respectable % if the index is below 1270.
The hedge in this case only makes a small dent in the potential losses but it does help. I think you may get better hedging from outright long calls in SPY but it will cost more of course.
There is nothing wrong with the strategy but the hedge should not necessarily be a fixed contract amount in relation to the SPX. I usually look for a % of my premium I am willing to spend and then look for the strikes/product that will give me the most bang for my hedged buck. I will do spreads for hedges if they are OTM and cheap but the long options offer the most delta assistance.
So play around with other hedge choices and with not even putting on a hedge at all unless the market starts to look like it is coming for your short strike perhaps.
Richard,
I'm looking for a newer crystal ball also....
M~
I'm looking for a newer crystal ball also....
M~
Quote from RichardRimes:
Hey Murray...you were right about my SPX trade in June...I could have closed out even a couple of days at BE or better but as I looked at my trading journal I just didn't want to give up on my nice premium...then panicked the day before:eek: oh wellI sure wish I did have a crystal ball on this situation in the Middle East....somehow I think it will continue to continue...
Closed my SPX 1340/1350 bear call for debit $0.15
SOLD SPX Aug 1340/1350 Bear call for $0.80 credit on July 6th.
BOT SPX Aug 1340/1350 Bear call for $0.15 Debit on July 16th.
ROI: $0.65 (credit) /9.35(Margin) = 6.95% for 10 days
SOLD SPX Aug 1340/1350 Bear call for $0.80 credit on July 6th.
BOT SPX Aug 1340/1350 Bear call for $0.15 Debit on July 16th.
ROI: $0.65 (credit) /9.35(Margin) = 6.95% for 10 days