SPX Credit Spread Trader

Quote from jeffm:

As Mo's post points out, ES spread margin is better than SPX. How much better also depends on the width of the spread. A 5 pt ES spread will have margin similar to a 5 pt SPX spread (remember that you will need 2 ES contracts to equal 1 SPX). A 20 point spread will be quite a bit higher with SPX vs ES. A 100 point spread would need huge margin on SPX, but not a big deal at all on ES. Taken to the logical conclusion...selling naked on SPX is a no-go, but as has been discussed, selling naked on futures is not a problem.

With SPX, Uncle Sam and Reg-T hold your hand to make sure you don't overleverage. SPAN is like Earl Campbell with a tear-away jersey :)

Neither one will help you if you walk off a cliff. SPAN just lets you get to the edge faster. Choose your path wisely :)
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all perfectly pointed out. it is so easy to get greedy and walk off that cliff. the only thing i can say , is; i have been writing options for years. i intend on being a survivor.
such an evolution though, i never considered indexes, future options , etc until coaches thread.
 
As a long time lurker and first time poster I would like to thank Coach and all whom have contributed to this great journal.

It seems OTM vertical call credit spreads would be more rewarding then similar OTM diagonal call spreads due to the inherent volatility crush during upside moves in the S&P. Comments please.
 
Quote from Mustbehoudini:


It seems OTM vertical call credit spreads would be more rewarding then similar OTM diagonal call spreads due to the inherent volatility crush during upside moves in the S&P. Comments please.
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Depends 100% on strikes chosen. If underlying index approaches your short strike a few days before expiration, diagonal is going to be a huge winner, regardless of implied vols. OTOH, the call credit spread is going to make you sweat bullets.

Mark
 
My two cents.

Diagonals are placed in low IV. While the converse may be true -- placing verticals in high votal markets, the high votal may portend undesireable market movement.

I lost 50% of my account using the vertical and IC, jumping out of a position when it approached my short. It is truly frustrating to jump out and then see the market move back in my direction.

I find it interesting now to sit back and watch as the market approaches the diagonal short. My max profit is when it touches, and perhaps goes beyond the short.

I just cannot see myself placing a vertical anymore without more thought and research. The risk/reward, as Dan Sheridan says, stinks.

The SP moves from 1245 to 1290 within a few weeks. That kind of movement, for me, does not fit the IC, but goes well with a double diag. The major danger is the IV crush, but I just wait for the low IV to place the trade.
 
Quote from cdowis:

My two cents.
I lost 50% of my account using the vertical and IC, jumping out of a position when it approached my short.
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That's a huge loss (sorry to hear that it was so painful) for a spread that did not even go thru the strike. My guess is that you sold way too many spreads for the size of your account.

Mark
 
Sheridan also places the vertical short at 1 sigma, and if that gets threatened, he rolls out another 1 sigma and doubles the position. If the 2nd position loses, then he calls it quits. In an extended upmove like last fall, you might have gotten zapped on call verticals when adjusted in this manner. But most times you would be ok.

Just take any basic oscillator (like rallymode's 5,3,3 stoch) . Sell your put verticals when it drops below 20 and sell the call vertical when it hits 80. You'll do fine 9 times out of 10, and the 10th time you can likely adjust to a b/e or small loss.

For me, the most difficult thing about verticals is sitting in cash and waiting for the setup. If I get impatient and sell puts too early, they are so far OTM that they rarely get threatened. But if I get impatient and sell call spreads too soon...bleh! The put skew will save you from impatience. Not so for calls. So its even more important to wait for the right entry. I just adjusted some 1305 ES spreads up to 1320. Thing is...I shouldn't have been short at 1305 anyway. If I had maintained self control, I would have sold the calls a few days later, been short at 1330, made the same money and been much safer. Lesson learned? Time will tell...

This isn't to denegrate the diagonal. Its a great tool and I am enjoying learning more about using it. But don't throw the credit spread out just yet.

Iron Condor is another story. If your entry method suggests a call spread while you still have a put spread in place and you end up with an IC...fine. But I don't see the IC as a good trade to put on all at once. Not on SPX. Other underlyings will differ of course.


Quote from cdowis:

I just cannot see myself placing a vertical anymore without more thought and research. The risk/reward, as Dan Sheridan says, stinks.

The SP moves from 1245 to 1290 within a few weeks. That kind of movement, for me, does not fit the IC, but goes well with a double diag. The major danger is the IV crush, but I just wait for the low IV to place the trade.
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I definately want to add diagonals to my arsenal. I've been studying them and am starting to get a feel for how they work.

What I don't have a good feel for is when to get in. I understand that IV must be low, but I'm not clear if I need to get in about 4 weeks to expiration or can you still place a good trade even two weeks out.

With straight verticals, it's easy to see what the credit is. But with diagonals it's tougher to tell where you might wind up.

Any rules of thumb, advice. Also, I think for now I would prefer to do bear calls, till I get my feet wet.

Is there a site where I can see the historical daily closing price of options in one view. For example, if I want to follow how a certain diagonal's debit/credit changes on a daily basis. The front month option will be subject to theta decay but I'm trying to determine if I can still put on a diagonal say with 2 weeks left. Further, it doesn't sound like it's a good idea to go out much more than 4 weeks.

Also, what about TA indicators (other than VIX). What else are people using to decide on entry points.

Comments?



Quote from dagnyt:

Depends 100% on strikes chosen. If underlying index approaches your short strike a few days before expiration, diagonal is going to be a huge winner, regardless of implied vols. OTOH, the call credit spread is going to make you sweat bullets.

Mark
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jeff, great posts.

I feel, at this time, naked calls and vert spreads 1 sigma and further have little to no expectancy. But the call diagonals, even with the iv drop, have positive expectancy in my view. Call diagonals have my vote for now.
 
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Quote from rdemyan:

I definately want to add diagonals to my arsenal. I've been studying them and am starting to get a feel for how they work.

What I don't have a good feel for is when to get in. I understand that IV must be low, but I'm not clear if I need to get in about 4 weeks to expiration or can you still place a good trade even two weeks out.

With straight verticals, it's easy to see what the credit is. But with diagonals it's tougher to tell where you might wind up.

Any rules of thumb, advice. Also, I think for now I would prefer to do bear calls, till I get my feet wet.

Is there a site where I can see the historical daily closing price of options in one view. For example, if I want to follow how a certain diagonal's debit/credit changes on a daily basis. The front month option will be subject to theta decay but I'm trying to determine if I can still put on a diagonal say with 2 weeks left. Further, it doesn't sound like it's a good idea to go out much more than 4 weeks.

Also, what about TA indicators (other than VIX). What else are people using to decide on entry points.

Comments?
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Apex,
I'd be interested to hear what you mean by "grid analysis". I did some searching back on your previous posts, and couldn't find any posts dealing with the topics. I did find your trading station though and I must say, nice setup. On you upper right monitor it looks like you have some type of interesting smoothed moving average....reminds me of the old movie Tron with the light cars.

Anyway, great job.

burr.

Quote from apex82:

Using my grid anaylsis, I have been hitting homeruns with these spreads for the past few months. Thanks for all the input from coach and others on all the nuances of these spreads. I was just wondering if anyone has had any success doing these on any other instruments? I am liking nat gas and gold for some put spreads and was wondering if anyone has any experience with other commodities or index's with these FOTM spreads, and any tips on conquering these other fields.
Thanks
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