SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Nope... you nuetralize VEGA... will take a loss on the Credit Spread. Remember, the credit spread is the same month, you need the next month out in the diagonal... which will increase with VEGA. Credit spreads are delta driven... really not THETA driven until the last 3 days to expiration.
A risk analysis program will show you exactly what will happen... and you won't like it.
A risk analysis program will show you exactly what will happen... and you won't like it.
Same margin but definitely not the same risk. Also, your broker will not need to call you early out of a SPX spread but a huge swing in the ES futures and IV might get you a broker call on your short ES puts and a tidy loss.
So in addition to comparing the initial margins, factor in the max risk as well to determine if the reward is worth it.
So in addition to comparing the initial margins, factor in the max risk as well to determine if the reward is worth it.
We do it with puts... because it has a nicer SKEW.. will hold downside put values for the next month out... much better than call side.
By middle... we project an area of the diagonal where we may want to profit from between the call and put side diagonals.
Last months positions were 1305c, 1250p, 1225p, 1195p.... so we had 'two' middles... for a much larger extended profit range. Certainly not a higher profit range... but larger. Although 24% wasn't bad! I think our B.E.'s were like 1310-1180
By middle... we project an area of the diagonal where we may want to profit from between the call and put side diagonals.
Last months positions were 1305c, 1250p, 1225p, 1195p.... so we had 'two' middles... for a much larger extended profit range. Certainly not a higher profit range... but larger. Although 24% wasn't bad! I think our B.E.'s were like 1310-1180
Delta can increase or decrease the return... pending on how close to the short strike and at what volatility level there is...
Delta move down is nicer... but delta move beyond and way beyong the upside call... would not be nice. In general.. delta is less of a concern.
Now.. with our four position diagonal... delta really had little effect. We set up our profit window large... and about equal throughout a large window.
Delta move down is nicer... but delta move beyond and way beyong the upside call... would not be nice. In general.. delta is less of a concern.
Now.. with our four position diagonal... delta really had little effect. We set up our profit window large... and about equal throughout a large window.
This is not an apples-apples comparison.
First, selling a near ATM ES option has almost the same margin as holding the futures contract outright. Which makes sense, as your risk is similar between the two positions.
Second, you're comparing an naked option with a spread. That's perfectly fine and valid, but don't call it a follow up on margin requirements. If you want to compare ES and SPX margin, show both of them with a naked option sale, or both of them with a spread. But not naked versus spread.
Third, if you want to collect 3.25 points of premium to compare with the SPX 1260/1250 spread, try selling 2 ES 1210 puts for 3.30. Overnight margin for the 2 naked 1210P is about $4000. For $10k margin to compare with your SPX spread, you would collect $825, versus $325 for the spread. Obviously the risk/reward and %win/loss greatly differs between the two trades. Or compare the ES spread which collects about 2.5 pts, but has a margin for the spread of about $400.
I leave it to the reader to choose their own r/r and %w/l. But at least make sure you are looking at the right numbers to make the comparison.
First, selling a near ATM ES option has almost the same margin as holding the futures contract outright. Which makes sense, as your risk is similar between the two positions.
Second, you're comparing an naked option with a spread. That's perfectly fine and valid, but don't call it a follow up on margin requirements. If you want to compare ES and SPX margin, show both of them with a naked option sale, or both of them with a spread. But not naked versus spread.
Third, if you want to collect 3.25 points of premium to compare with the SPX 1260/1250 spread, try selling 2 ES 1210 puts for 3.30. Overnight margin for the 2 naked 1210P is about $4000. For $10k margin to compare with your SPX spread, you would collect $825, versus $325 for the spread. Obviously the risk/reward and %win/loss greatly differs between the two trades. Or compare the ES spread which collects about 2.5 pts, but has a margin for the spread of about $400.
I leave it to the reader to choose their own r/r and %w/l. But at least make sure you are looking at the right numbers to make the comparison.
Haircut on the SP is 6% to the upside and 8% to the downside. Yes, it is fixed. The problem with span is it's variable margin. Meaning it can go up on you without notice and force a liquidation. And it usually happens at the worst possible time during a big selloff. I've seen span margin double overnight. And if you can't meet it, they liquidate. Span also does nothing for the long gamma trader. In other words, when you buy options, you have to pay 100% of the premium. Span is only useful if you sell naked options.
Also with span, you can't mix and match products. If you trade ES options, you will get relief on your margin if you trade ES futures against it, but nothing else. With a haircut, you can trade, spy options, es options, spx options, oex options, spyders, even dow, nasdaq, russell options and futures and ETF's and get haircut relief on all those products as one big position.
There really is no comparison between the two. Span is very limiting. Haircut and cross margin is much more flexible and all encompassing.