SPX Credit Spread Trader

Quote from jeffm:

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.
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Jeff,

Do you mean the margin for ES 1260/1250 spread is $400 for each contract? If so, the credit over margin ratio is 2.5*50/400 that is slightly higher than 25%.

It doesn't seem span provides a higher leverage for spread traders.
 
The return is a factor of the risk. If the short strike has a higher liklihood of being ITM at expiration then the premium is higher. The risk is $8.75 which, as with most credit spreads, is high and the position must be managed to avoid as best as possible the lart moves.

Quote from yip1997:

Couldn't believe the credit spread gives me such a good return (if they expire worthless)?
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Hi

I have ben following this good informative thread for a long time. I am thinking of setting up a LLC with my retirement a/c as a partner. Can anyone guide or help me how can we do this. How much this should cost? What precautions should be taken?

Thanks in advance

fumablanc
 
Quote from optioncoach:

The return is a factor of the risk. If the short strike has a higher liklihood of being ITM at expiration then the premium is higher. The risk is $8.75 which, as with most credit spreads, is high and the position must be managed to avoid as best as possible the lart moves.
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I agree that the risk is high. The probability being expired worthless is around 80% using 27% vol. But I expect the vol will come down before Fed meeting. No risk, no reward. Option premium is actually risk premium. Higher risk, higher premium.
 
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