SPX Credit Spread Trader

Quote from optioncoach:

Pick one side to get very aggressive with and shave off the bid or ask. As soon as you get filled grab the other side to lock in the spread, maybe only shaving one tick off that bid or ask so you can get filled quickly. I usually leg in rather fast since I am not trying to buy at the original bid and get too greedy. If the market starts moving after leg 1 is filled, I just grab the second leg at the bid or ask to make sure I get it. That is why I try and get really aggressive with the 1st leg so if I have to grab the seoncd in a rush I still will l ike the credit I get.
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The option im trying to bu is SEP1340 1.75 BID (mine after shaving) and 1.90 ask.

So what is one tick ? 0.10 or 0.05

Or does one tick off the ask mean buying at 1.89 or 1.80? Sorry dumb qs...i know
 
Quote from optioncoach:

From CME on tick sizes in the ES options:

Regular 0.25=$12.50 for premium >5.00

Half Tick 0.05=$2.50 for premium < or =5.00
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Got it, thanks again

Edit: Forgot to say that the ES trades was only in the PAPER TRADING account. Just have to get used to working TWS IB and the bid ask before jumping in. So maybe my experience in getting filled in the paper account is not indicative of the real TWS account. I definitely don't get an easy on the mid in the paper account as some people have said. Though IB would make it easy.

However, I did some real SPX credit spread trades on IB though. With spreads i just put my LIMIT spread price in and if it gets hit, good. But if the market runs off, im not exposed with one leg. Just brought my experience with SPX from OX over to IB.
 
Quote from Sailing:

July/Auguest Diagonal Update by request:

Current SPX Put Diagonal Positions as of Tuesday, July 18

S July 1195p - $7.50 Currently $1.30
B Aug 1175p - $9.70 Currently $6.70

July 1195p should expire worthless... profit about 22.5%, depending on the final Aug 1175p value



S July 1225p - $11.80 Currently $4.70
B Aug 1200p - $13.20 Currently $10.20

If July 1225 expire worthless... profit about 47.2%, again dependingon the August 1200p value. Profit could be more if market moves closer to 1225.


Trading Notes:

Positions were entered when VIX was around 13. The increased VEGA really helps support the next month out positions and allows for further downside protection or B.E. B.E. has increased about 10 points.

Unlike credit spreads, the movement toward your short is desired... which in turn increases volatility. SET is obviously an issue, but there is a ton of premium still left in the shorts and really no need to exit early. We may evaluate SET near the close on Thursday and make a decision.

At no time during the month does the position really fluctuate much, get you nervous, or need an adjustment. It's this last week when things really heat up.... profit wise.

What I like about diagonals vs. credit spreads is the value of your long (next month out) can increase in value as the short expires. As the market moves toward the position, the long increases in value, both DELTA wise and VEGA wise.... unlike the credit spread, where you're hoping for both to expire. Also, you have multiple adjustment possibilities.... one of which is to short the back month DEC options and convert to an Aug/DEC short Calendar... compliments of MO.

On the call side, we had a 1305c/1325c which will generate a small 2% profit.

Again... ideally this is a great VEGA play... not a true form THETA play as many people misunderstand the position. The call side was placed to help profit if the market went up.. even though the puts would have made a small profit.

Hope this was helpful. We'll update you upon close with exact numbers.

Murray
The Grand Rapids Investment Club
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Murray,

You are right that if the underlying moves toward your short position. The best case for diagonal spread is for the underlying to move slowly to your front month short. However, if the underlying moves further away from your short, both legs will lose values, and it is likely that you might have a small loss ( at most the debit amount ).

I did in the past to add one more leg to compensate for the debit.

In your example:
S July 1195p - $7.50
B Aug 1175p - $9.70

I probably would have added a naked Aug 1150p to reduce my debit, or sometimes even a credit.

I welcome your comments.
 
Quote from mdshiao:

I would like to open an IRA account at IB to trade ES spreads as coach did (long or short ES). But I heard that IRA account does not allow margin. Can someone verify that IB allows IRA account to trade ES spread?

Thanks,
mdshiao
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You can trade ES with IRA in IB. Unlike margin with stock trading, margin with ES trading is not a loan.
 
Good point, it is a good faith deposit which is a small % of the total value of the contract so it is viewed as margin by many but is just putting some cash up :)

Quote from yip1997:

You can trade ES with IRA in IB. Unlike margin with stock trading, margin with ES trading is not a loan.
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That's a great idea, although these positions were placed in a Retail Tradig account.... the naked stuff is 'forbidden' per say.

I'll jot down the suggestion for the group as we transcend into non-retail margin accounts. I like the way you're thinking!

Thanks for the idea....

Murray



Quote from yip1997:

Murray,

You are right that if the underlying moves toward your short position. The best case for diagonal spread is for the underlying to move slowly to your front month short. However, if the underlying moves further away from your short, both legs will lose values, and it is likely that you might have a small loss ( at most the debit amount ).

I did in the past to add one more leg to compensate for the debit.

In your example:
S July 1195p - $7.50
B Aug 1175p - $9.70

I probably would have added a naked Aug 1150p to reduce my debit, or sometimes even a credit.

I welcome your comments.
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I have a short straddle with IWM at 69, opened a week ago. Since one will expire worthless, and one will be exercised, just wonder how you close the position.

Do you close the position next Monday morning after it is exercised, or do you buy or sell IWM using market at close on Friday?
 
Quote from Sailing:

That's a great idea, although these positions were placed in a Retail Tradig account.... the naked stuff is 'forbidden' per say.

I'll jot down the suggestion for the group as we transcend into non-retail margin accounts. I like the way you're thinking!

Thanks for the idea....

Murray
More...


Note this type of strategy has a naked leg. It means you have a potential of unlimited risk. The selection of the strike prices and ongoing risk management is the most important part for this type of strategy.

I will suggest only experienced option traders like you and Coach with strong risk management skills to look at it. Though I am still using it, I feel it is very risky :) I really don't like to promote this type of strategy.
 
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