Richard's Random Musings... OK.... trading the 1st 4 hrs then gone the rest of the day. Thought when I came home the market up so much my 1340 Aug spx calls would be up BIG........but NOooooo are the MM's screwing with us? Is this RALLY going no where? Before I left the 1325's were trading up nicely...now...nothing? weird...I know the VIX dropped, therefore value in the indices dropped, but in both the SPX and NDX? hummmmm NDX I thought would be high enough to B=fly my current vertical...Noooooo. I KNOW they are screwing with us. Will this upside be stronger than MM's would have us believe? Very strange market.
SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
When the underlying moves towards your short strike in the PUT Diagonals, you're supposed to make money due to VIX (but that didn't happen for yip from what he posted, maybe SPX moved down too slowly and did not cause a VIX spike). Even when it stays reasonably steady you make money due to front month decaying more than back month.
Coach, What happens when the underlying move upwards towards the short of your credit Call diagonals ? (assuming you put them on for 1:1 ratio) I sort of understand the PUTS now but am now trying to work out diagonals for Calls.
Quote from optioncoach:
The profit is not from the IV expansion alone. For me that is not why I play it. It is just a greek in my favor. I also look for the potential of having the short strike expire worthless so I can take money in the later month or adjust to another position.
So the fact that there is a lot of potential has me dipping my toes with this 20 lot position.
Hopefully the underlying moves a little closer to your short strike when it expires so that your back month is worth more
But what happens when the underlying moves away from your PUT diagonals ? I think that when you lose money
But not much according to Murray. This is what he said " 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."
The only explanation I can come up with is that theta is helping you because theta in the front month is greater than the back month. But then isn't delta and gamma hurting me more because the back month PUT has more of those to lose
JDiagonal Dialog Update for Wednesday, July 20th
ust returned from sailing all day... MISSED... . all the action.
Some of you have questions as to how the diagonals did today. Well, diagonals enjoy volatility increase, (that didn't happen today). They also like to be near the short expiration at expiration for maximum profit. Sure was hoping for a down day... but the profits are still substantial.
I'll post final numbers Friday.... but they're up $27,342 on $150,000 margin as of today.... even with the big move up.
As far as the calls diagonals... we have a 1305c/1325c which had a nice up day.... thanks to today.
In my recent post, I posted two diagonal trades... we have four currently for this month. We 'unbrella'ed the positions around 25pt. increments when VIX was low. By posting just two... I thought it would be less cluttered to follow.... but with the recent up action, the other two positions have taken off and will be worth displaying to compare how the Puts did against the Calls.
We seem to select high open interest strikes... for no apparent reason... except for adjustments purposes I guess (but we haven't made any this year so far). Strikes like 1225, 1250, 1275, 1300, etc. are common for us to select. The concern in VEGA.
Phil,
FYI, if you would taken MO's advice when the VIX was high Tuesday and Sold the DEC 1200 put against the current August put left over from the diagonal....(we logged this one on Tuesday), you would have made a nice $5.00 VEGA drop in just this one day..... (that is the difference in value of today's DEC and AUG puts)
Look for the final update on Friday.
~~ _/) ~ ~
M~
PS. For those of you who keep asking, we race a Melges 24, one design sailboat. Hopefullly, V-Trader will be our sponsoring us next year in Chicago.....
Carefully look at the 17th boat in the picture... that's us!!!
http://www.melges24.com
When the underlying moves towards your short strike in the PUT Diagonals, you're supposed to make money due to VIX (but that didn't happen for yip from what he posted, maybe SPX moved down too slowly and did not cause a VIX spike). Even when it stays reasonably steady you make money due to front month decaying more than back month.
Coach, What happens when the underlying move upwards towards the short of your credit Call diagonals ? (assuming you put them on for 1:1 ratio) I sort of understand the PUTS now but am now trying to work out diagonals for Calls.
Hopefully the underlying moves a little closer to your short strike when it expires so that your back month is worth more
But what happens when the underlying moves away from your PUT diagonals ? I think that when you lose money But not much according to Murray.
This is what he said " 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."
The only explanation I can come up with is that theta is helping you because theta in the front month is greater than the back month. But then isn't delta and gamma hurting me more because the back month PUT has more of those to lose [/QUOTE]
ust returned from sailing all day... MISSED... . all the action.
Some of you have questions as to how the diagonals did today. Well, diagonals enjoy volatility increase, (that didn't happen today). They also like to be near the short expiration at expiration for maximum profit. Sure was hoping for a down day... but the profits are still substantial.
I'll post final numbers Friday.... but they're up $27,342 on $150,000 margin as of today.... even with the big move up.
As far as the calls diagonals... we have a 1305c/1325c which had a nice up day.... thanks to today.
In my recent post, I posted two diagonal trades... we have four currently for this month. We 'unbrella'ed the positions around 25pt. increments when VIX was low. By posting just two... I thought it would be less cluttered to follow.... but with the recent up action, the other two positions have taken off and will be worth displaying to compare how the Puts did against the Calls.
We seem to select high open interest strikes... for no apparent reason... except for adjustments purposes I guess (but we haven't made any this year so far). Strikes like 1225, 1250, 1275, 1300, etc. are common for us to select. The concern in VEGA.
Phil,
FYI, if you would taken MO's advice when the VIX was high Tuesday and Sold the DEC 1200 put against the current August put left over from the diagonal....(we logged this one on Tuesday), you would have made a nice $5.00 VEGA drop in just this one day..... (that is the difference in value of today's DEC and AUG puts)
Look for the final update on Friday.
~~ _/) ~ ~
M~
PS. For those of you who keep asking, we race a Melges 24, one design sailboat. Hopefullly, V-Trader will be our sponsoring us next year in Chicago.....
Carefully look at the 17th boat in the picture... that's us!!!
http://www.melges24.com
When the underlying moves towards your short strike in the PUT Diagonals, you're supposed to make money due to VIX (but that didn't happen for yip from what he posted, maybe SPX moved down too slowly and did not cause a VIX spike). Even when it stays reasonably steady you make money due to front month decaying more than back month.
Coach, What happens when the underlying move upwards towards the short of your credit Call diagonals ? (assuming you put them on for 1:1 ratio) I sort of understand the PUTS now but am now trying to work out diagonals for Calls.
Hopefully the underlying moves a little closer to your short strike when it expires so that your back month is worth more
But what happens when the underlying moves away from your PUT diagonals ? I think that when you lose money
But not much according to Murray. This is what he said " 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."
The only explanation I can come up with is that theta is helping you because theta in the front month is greater than the back month. But then isn't delta and gamma hurting me more because the back month PUT has more of those to lose
[/QUOTE][/B][/QUOTE]Quote from Sailing:
Thanks for your update Murrray. Much appreciated by me and all.
Carefully look at the 17th boat in the picture... that's us!!!
Yup i see it nice and clear.
Just returned from sailing all day... MISSED... . all the action.
Id be sailing too if I had these diagonals
As far as the calls diagonals... we have a 1305c/1325c which had a nice up day.... thanks to today.
So was your increase in the CALL diagonals helped by the increase in the SPX ? (similar to how your PUT diagonals have benefit in falls from SPX towards the short PUTS)
But how..with VIX not helping and delta of the short calls greater than the long call. Unless im missing something
We 'unbrella'ed the positions around 25pt. increments when VIX was low.
What does that mean? One Put diagonal around 25 points behind another?
By posting just two... I thought it would be less cluttered to follow.... but with the recent up action, the other two positions have taken off and will be worth displaying to compare how the Puts did against the Calls.
We seem to select high open interest strikes... for no apparent reason... except for adjustments purposes I guess (but we haven't made any this year so far). Strikes like 1225, 1250, 1275, 1300, etc. are common for us to select. The concern in VEGA.
Great idea
Look for the final update on Friday.
Thanks Murray for your updates and sorry for all the questions. No need to answer if you're too busy sailing
Looking forward to hearing from you Friday.By posting just two... I thought it would be less cluttered to follow.... but with the recent up action, the other two positions have taken off and will be worth displaying to compare how the Puts did against the Calls.
Was your Call diagonals losing money the past week with SPX falling and falling prior to yesterday's upday. But im guessing that the gains from your PUT diagonals were way more than what you were losing on the Call diagonals. Maybe you wouldn't be losing much with your calls during that time because theta is helping ? Maybe im talking rubbish again so feel free to flame
[/B][/QUOTE]Edit: Oops..I just realised with CALL diagonals, you get a credit when open them anyway (unlike PUT diagonals where you have to pay a debit). So no worries there.
So with the SPX moving down and not threatening your short CALL strike, you'll just keep your initial credit for opening the position. And when your short expires worthless, you can sell you long back month CALL and make more money ?
Technically the correct way is profit over maximum risk. However ES options have lighter margin requirements and pros would take actual margin required for returns but I do not have the time to track the actual margin fluctuations day to day.
For credit spreads I take the credit over the maximum risk. For the debit diagonal it should be the same but I cheat and look at return on my debit even though the debit is not the max risk since there is still a margin requirement. True risk is debit + max risk.
I Like ES options for the following reasons:
1. Much easier to shave the bid and ask since it is tighter
2. Not entirely at mercy of CBOE market makers since it is electornically traded and I can become the bid or the ask with my order. But downside is if strike has no action I will not get filled at a shaved price most likely.
3. Span margin is a plus but with a risk-based haircut I get that mostly anyway.
4. I have more choices with ES now since the End of the month options (EW) are also traded (wider b/a spreads but not terrible). I can do diagonls using ES and EW or credit and ratio spreads with them as well.
5. Easier for me mentally to determine ES futures hedges if needed. Not a big deal but less math makes me happy.
AS for SPX I still trade them in my retail account so that is why you are seeing a mix of SPX and ES/EW positions.
For credit spreads I take the credit over the maximum risk. For the debit diagonal it should be the same but I cheat and look at return on my debit even though the debit is not the max risk since there is still a margin requirement. True risk is debit + max risk.
I Like ES options for the following reasons:
1. Much easier to shave the bid and ask since it is tighter
2. Not entirely at mercy of CBOE market makers since it is electornically traded and I can become the bid or the ask with my order. But downside is if strike has no action I will not get filled at a shaved price most likely.
3. Span margin is a plus but with a risk-based haircut I get that mostly anyway.
4. I have more choices with ES now since the End of the month options (EW) are also traded (wider b/a spreads but not terrible). I can do diagonls using ES and EW or credit and ratio spreads with them as well.
5. Easier for me mentally to determine ES futures hedges if needed. Not a big deal but less math makes me happy.
AS for SPX I still trade them in my retail account so that is why you are seeing a mix of SPX and ES/EW positions.
Was your Call diagonals losing money the past week with SPX falling and falling prior to yesterday's upday. But im guessing that the gains from your PUT diagonals were way more than what you were losing on the Call diagonals. Maybe you wouldn't be losing much with your calls during that time because theta is helping ? Maybe im talking rubbish again so feel free to flame
The call diagonal spread actually was not placed as a credit spread. Sold July 1305c - $6.20 Bought August 1225c - $6.80 were the original fills, debit of .60
They were placed only about two weeks ago incase we had a huge turn-a-round event.... ie FOMC news, etc. You might think of it as a hedge, but we looked at it as an increase in profit range.
Edit: Oops..I just realised with CALL diagonals, you get a credit when open them anyway (unlike PUT diagonals where you have to pay a debit). So no worries there.
So with the SPX moving down and not threatening your short CALL strike, you'll just keep your initial credit for opening the position. And when your short expires worthless, you can sell you long back month CALL and make more money ?
The July/Auguest call diagonal prior to the move yesterday was still profitable (about 1%), currently now with the 1305 July call expiring worthless, the Aug 1325c is about .80. Small profit, but lot of upside profit potential.... if we had another upday follow through.
Adjustment Ideas with the Aug 1325c:
1. We could sell the 1315 against it for an August credit spread and onlyl having to fight the b/a spread once. Essentially the Aug 1325c would be literally free to sell against... actually a .20 c redit as of now. The 1315s are now selling for $1.15 That's not a bad return: $1.15 on a .20 credit.
2. Sell a DEC 1300c and play a delta movement to the downside. Vega would probably increase.... but a bleeding of the VIX would help protect you should the market move higher. Current DEC 1300c - $30.70 (A partial MAVERICK X-mas Tree)
3. Close out position and replace for Aug/Sept.
4. Place an unbalanced Aug Call Butterfly
M~
The call diagonal spread actually was not placed as a credit spread. Sold July 1305c - $6.20 Bought August 1225c - $6.80 were the original fills, debit of .60
They were placed only about two weeks ago incase we had a huge turn-a-round event.... ie FOMC news, etc. You might think of it as a hedge, but we looked at it as an increase in profit range.
Edit: Oops..I just realised with CALL diagonals, you get a credit when open them anyway (unlike PUT diagonals where you have to pay a debit). So no worries there.
So with the SPX moving down and not threatening your short CALL strike, you'll just keep your initial credit for opening the position. And when your short expires worthless, you can sell you long back month CALL and make more money ?
The July/Auguest call diagonal prior to the move yesterday was still profitable (about 1%), currently now with the 1305 July call expiring worthless, the Aug 1325c is about .80. Small profit, but lot of upside profit potential.... if we had another upday follow through.
Adjustment Ideas with the Aug 1325c:
1. We could sell the 1315 against it for an August credit spread and onlyl having to fight the b/a spread once. Essentially the Aug 1325c would be literally free to sell against... actually a .20 c redit as of now. The 1315s are now selling for $1.15 That's not a bad return: $1.15 on a .20 credit.
2. Sell a DEC 1300c and play a delta movement to the downside. Vega would probably increase.... but a bleeding of the VIX would help protect you should the market move higher. Current DEC 1300c - $30.70 (A partial MAVERICK X-mas Tree)
3. Close out position and replace for Aug/Sept.
4. Place an unbalanced Aug Call Butterfly
M~
Scoobie:
A lot of great questions so I hope I do not miss any or hopefully Sailing Murray hit most of them.
With respect to Calls, I do them only for a net credit in a ratio so I have more longs than short. If the market never hits my short strike and it expires worthless or the market tanks, I still have a nice credit. Also the far month might still have some premium to sell for more profit, or to roll into a new position in that new month.
If the stock rushes to my short strike, I have more longs so that helps a bit. I could also rolls the short strike up one and sell more to make it a 1:1 spread if I just need a little more time. I could roll the short strike to the long month as a credit or debit spread or roll into the reverse calendar Mo and Murray are talking about (Jury is still out on that one for me since I would have to pick highs in VIX and be right otherwise open myself up for some losses if the calendar does not go my wa, but I have not analyzed this yet so I will not sya more).
As for the puts, I prefer credit spreads and put ratio spreads but I need to see how the diagonals work for debits on the put side so I did a 20 lot position. I want to see VIX increases in action and the possible adjustments in bear put spreads, calendars, bull put spreads and anything else I can do if the short strike starts to get threatened.
What I like is that the market moving to the short strike is not as daunting as it is with bull put spreads and ratio spreads so it gives me another tool.
I heard one trader say that if all you have in your toolbox is hammers, everything looks like a nail to you. I want more tools so that I can see more in the market and trade off of the market moves and Vix changes instead of just the bull put or bear calls. I like the diagonals and what they offer and I like the ES and EW choices for even more trading potential. That is why I like the August ES/July EW position I put on.
A lot of great questions so I hope I do not miss any or hopefully Sailing Murray hit most of them.
With respect to Calls, I do them only for a net credit in a ratio so I have more longs than short. If the market never hits my short strike and it expires worthless or the market tanks, I still have a nice credit. Also the far month might still have some premium to sell for more profit, or to roll into a new position in that new month.
If the stock rushes to my short strike, I have more longs so that helps a bit. I could also rolls the short strike up one and sell more to make it a 1:1 spread if I just need a little more time. I could roll the short strike to the long month as a credit or debit spread or roll into the reverse calendar Mo and Murray are talking about (Jury is still out on that one for me since I would have to pick highs in VIX and be right otherwise open myself up for some losses if the calendar does not go my wa, but I have not analyzed this yet so I will not sya more).
As for the puts, I prefer credit spreads and put ratio spreads but I need to see how the diagonals work for debits on the put side so I did a 20 lot position. I want to see VIX increases in action and the possible adjustments in bear put spreads, calendars, bull put spreads and anything else I can do if the short strike starts to get threatened.
What I like is that the market moving to the short strike is not as daunting as it is with bull put spreads and ratio spreads so it gives me another tool.
I heard one trader say that if all you have in your toolbox is hammers, everything looks like a nail to you. I want more tools so that I can see more in the market and trade off of the market moves and Vix changes instead of just the bull put or bear calls. I like the diagonals and what they offer and I like the ES and EW choices for even more trading potential. That is why I like the August ES/July EW position I put on.