SPX Credit Spread Trader

IB and OX and ToS will allow it but the back month will be treated as a naked option. So if you have the margin for those naked options, you can do it.

With risk-based haircut, the long options will be counted against the long to reduce the margin requirement and that is where the benefit comes in with the haircut.
 
Quote from Sailing:

[What's even better.. .... is the reverse VEGA play.

Consider this... we get a huge VEGA spike sometime in Aug.

The Put diagonal 1225/1200 is making money....
Short Aug 1225p = $6.00
Long Sept 1200p = $8.00

Buy back that expensive Aug 1225p for $6.... (this is when most people would say... WHAT?)

And sell the back month DEC 1175p for $28.00

Case I: (Market continue down)
The market moves further down.... ok.... ride it out and take Aug 1225p profit. Buy next month put to replace it and be covered on the DEC short.

Case 2: (Market trades sideways)
The market consolidates for two weeks.... VIX drops 10%, August 1225p is now $3, but the DEC 1175p is now $15. HUGE profit... on VEGA slide. DEC put can be bought back and front month again resold

Case 3: (Market trades up)
The market moves up... VIX really falls, Aug 1225p fall to $1.00, DEC 1175p falls to $5.00 Even a bigger $$$ VEGA play.


We've bact tested this for SIX months, because we're not in the appropraite 'margin' required account types... 'haircut' or 'span' at this time. But I really like the Risk/Reward on this... 'MAV' style X-mass tree strategy.... oops.. that's proprietary.

Mav, sure hope you're reading this!


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I like your reverse vega play.

Suppose I am going to do it now.

STO Aug 1225 Put @ 7.3
BTO Sep 1200 Put @ 9.3

net debit 2.0

Case 1: Market going down at Aug.
VIX increases, and BTC Aug 1225 Put for a loss, say at that time Aug 1225 Put @ 9.3 for a loss of $2.
STO Dec 1175 Put, say @ 25 ( currently it is at 16.5).

Then follow the adjustment in your post.

Case 2: Market going sideway.
No need to adjust. Let the front leg expires, and you still have some values for Sep 1220 Put.

Case 3: Market goes up a lot at Aug b/c Fed announced no more rate hike.
Aug 1225 Put expires worthless.
Sep 1220 Put loses a lot more b/c vega decreases as the stock is further away from the strke.

So in case 3, we are losing money, and how do we adjust our position?
 
Quote from optioncoach:

IB and OX and ToS will allow it but the back month will be treated as a naked option. So if you have the margin for those naked options, you can do it.

With risk-based haircut, the long options will be counted against the long to reduce the margin requirement and that is where the benefit comes in with the haircut.
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Coach,

I like to increase my leverage in order to make more $ without increasing my risk. I have been increasing my risk by trading very volatile stocks to get a good premium. It drives me crazy as I have to hedge it frequently. By increasing my leverage, and trading less volatile index like spx, I actually reduce my risk.

My understanding is that haircut is only for market makers. For retail traders, there is no way to get haircut. Am I right? If not, how can we get haircut margin, and who will provide haircut margin?

BTW, I am trading full-time.

Percy
 
welcome to the land of mean reversion overvalued puts.


Quote from yip1997:

Murray,

Thank you for introducing me to vega play. I never look at vega when I open a combo. My analysis is always delta and theta driven.

You are right that my risk is small for closing the short now. It is just an opportunity cost. I have been trading this naked diagonal (my 3-leg strategy) for three months with very volatile stocks or index. I really didn't care about the underlying. It is very similar to your diagonal in that the max profit is gained when it moves close to your front month short. So the choice of strikes in diagonal and naked diagonal is very important.

One thing regarding SPX. I entered my first SPX trade this month. It surprised me when my simulation showed you can find SPX credit spread with postive expectancy. That means, in the long run, you always make $ with a good choice of strikes. I was never able to find similar trades with OIH nor IWM. It seems SPX has a personality very different from OIH. For those who trades RUT and SPX probably can tell me their difference in personalities.

I have learned a lot from you and Coach Phil this month and I will never be the same. Thank you everyone for making this forum so wonderful.
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You cannot get a haircut trading retail. For you to get a risk-based haircut, you need to go through a prop or institution.


Quote from yip1997:

Coach,

I like to increase my leverage in order to make more $ without increasing my risk. I have been increasing my risk by trading very volatile stocks to get a good premium. It drives me crazy as I have to hedge it frequently. By increasing my leverage, and trading less volatile index like spx, I actually reduce my risk.

My understanding is that haircut is only for market makers. For retail traders, there is no way to get haircut. Am I right? If not, how can we get haircut margin, and who will provide haircut margin?

BTW, I am trading full-time.

Percy
More...
 
Today, made adjustment to existing position.

BTC VLO Aug 67.5 call @1.25
STO VLO Sep 67.5 call @2.45

Initially I was trying to sell Sep 70 but didn't get a good fill, so I changed to Sep 67.5 call to get a better premium.

Current position for VLO
short Sep 67.5
long Dec 70
short Dec 75.
 
For a list of Proprietary Trading Firms (haircut margin) try this link
http://www.utropix.com/jmowery/PropFirms.html




Quote from yip1997:

Coach,

I like to increase my leverage in order to make more $ without increasing my risk. I have been increasing my risk by trading very volatile stocks to get a good premium. It drives me crazy as I have to hedge it frequently. By increasing my leverage, and trading less volatile index like spx, I actually reduce my risk.

My understanding is that haircut is only for market makers. For retail traders, there is no way to get haircut. Am I right? If not, how can we get haircut margin, and who will provide haircut margin?

BTW, I am trading full-time.

Percy
More...
 
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