SPX Credit Spread Trader

[dagnyt]

Quote from yip1997:

Coach,
Because of the volatility skew, most books recommend selling high vol, and buying low vol using ratio spread. That means, they are selling a put, and buying more puts with a lower strike. It contradicts with what we are doing it. We are here selling put, and buying put with a lower strike.

Comments are welcome.

When initiating diagonal spreads, if you buy exta options, you have a posiiton that is closer to delta neutral. That method yieds excellent results when the market moves and the options you sold go in the money.

By NOT buying the extra options, you do much better when the option you sold expires worthless (or is bought back at a low price). Because most diagonal traders sell options that they believe (either because of technical analysis or because the options sold are far out of the money) will NOT go in the money, they (we) take the posiiton that it is more profitable NOT to buy those extras.

Mark

 

[yip1997]

Mark,

Thank you for your opinion on diagonal spread. My original question was concerned with vertical spread, but your idea on diagonal spread is very useful to me too.

Coach has been trading credit spread with great success. However, it contradicts with conventional wisdom of buying low vol and selling high vol. My understanding is that Coach's approach is not a volatility play, and is mainly directional. Just want to get some opinions when comparing Coach's approach with ratio spread.

 

[Sailing]

Quote from yip1997:

Mark,

Thank you for your opinion on diagonal spread. My original question was concerned with vertical spread, but your idea on diagonal spread is very useful to me too.

Coach has been trading credit spread with great success. However, it contradicts with conventional wisdom of buying low vol and selling high vol. My understanding is that Coach's approach is not a volatility play, and is mainly directional. Just want to get some opinions when comparing Coach's approach with ratio spread.

Coaches credit spreads are not volatiity oriented, except for the fact that he uses increased volatiity to purchase further out of the money positions.

His spread strategy can be argued whether it's a DELTA or THETA position, but after trading these for two years now... it's alittle of both and a little risk managment. DELTA or movment in the opposite direction does help to an extent, but those options that far out of the money will retain some THETA and some Market Makers idea of THETA, whether it exists or not.

I've taken some 'RALLYMODE' approaches lately and selling closer to 1 sigma from ATM in oversold/overbouth conditions, netting about $3.00 credit. The advantag here is... if you need to roll or adjust, you usually can do so.. and still maintain a reasonable credit.

 

[Sailing]

Quote from yip1997:

Murray,

I have been looking at your diagonal spread for the last several days because of a better leverage compared to my 3-leg position. I seldomly trade from the volatility perspective. Do you have any good books recommended for diagonal spread?

The book you'll learn the most from is the one you wrtie yourself. Just not much out there on Diagonals... a few ToS webinars, and an IB webinar that I know of.

May I suggest a deep honest trading journal and paper trading. This would be Chapter One.

M~

 

[Sailing]

Quote from JimPos:

Murray:

Sorry in advance for a newbie question. When you place the diagonal call spread, do you look for increased volitility or decreased volitility as you do with the diagonal put spread.

Thanks.

Jim

I've been more reluctant to place a credit spread on the call side, but this is the sixth month now for placing the Call Diagonal.

Volatility on the call side is a rare event.... I wouldn't trade it that way... it's more of a small proft protector should the market move wildly up.

But it can also be used to convert the diagonal into a next month Credit Spread.... (assuming the first month expires worthless) with commission only on one leg now. And.. if you sell into a VEGA spike... convert to an Iron Condor and lock in the volatility premium.... then roll into a Credit Double Butterfly.... you'd be sitting pretty.

Check out the last page of this attachment as this was the hand out shared with the Investment Club tonight. It is a basic outline and summary of the Double Diagonal with that awesome Double Butterfly conversion at the end. It's not a published article by no means... threw it together in about 5 minutes before class tonight.

Enjoy,

Murray

 

[Sailing]

Quote from optioncoach:

UPDATE CURRENT OPEN POSITION SUMMARY OF SPREADS:


1. SPX August Credit Spread



4. ES Diagonal Put Spread

Sold 20 AUG ES 1225 Puts @ 8.75

Bought 20 SEP ES 1200 Puts @ 11.00

Net Debit = 2.25 or $2,250

VIX = 14.57

Coach,

Would you mind sharing what your margin requirement is for your Put Diagonal above. I'd like to get a better handle on this as we move this type of margin.

Thanks,

M~

 

[JimPos]

Murray:

Thanks for the handout. This one is definitely going into the playbook.

Quote from Sailing:

I've been more reluctant to place a credit spread on the call side, but this is the sixth month now for placing the Call Diagonal.

Volatility on the call side is a rare event.... I wouldn't trade it that way... it's more of a small proft protector should the market move wildly up.

But it can also be used to convert the diagonal into a next month Credit Spread.... (assuming the first month expires worthless) with commission only on one leg now. And.. if you sell into a VEGA spike... convert to an Iron Condor and lock in the volatility premium.... then roll into a Credit Double Butterfly.... you'd be sitting pretty.

Check out the last page of this attachment as this was the hand out shared with the Investment Club tonight. It is a basic outline and summary of the Double Diagonal with that awesome Double Butterfly conversion at the end. It's not a published article by no means... threw it together in about 5 minutes before class tonight.

Enjoy,

Murray

 

[rdemyan]

We're in my time frame to start looking for Sept. bear calls.

Entered a small position today. Got the following filled:

Sep SPX 1340/1350 filled at $0.70

The trade was actually placed at $0.60 (mid was $0.65) credit and I got filled at a dime more. SPX actually was dropping between the time I placed the trade and got filled.

Go figure (not that I'm complaining)

 

[ffa99]

Looks like another good day to enter call spreads near the top of the channel.

Hi all. I'm new to the board, although I've been trading credit spreads for 3 years and following Coach Phil on yahoo.

Question.. Is it appropriate to trade the put diagonals on the weeklies? For example:
bto SPX AUG 1230
sto SPX AUG weekly 1245
currently about a $5.20 debit

 

[rdemyan]

Did you mean the SEP 1230?

Quote from ffa99:

Looks like another good day to enter call spreads near the top of the channel.

Hi all. I'm new to the board, although I've been trading credit spreads for 3 years and following Coach Phil on yahoo.

Question.. Is it appropriate to trade the put diagonals on the weeklies? For example:
bto SPX AUG 1230
sto SPX AUG weekly 1245
currently about a $5.20 debit