SPX Credit Spread Trader

[dagnyt]

Quote from scoobie27:



Also what distance would eg SPX have to move before you sold more calls

If under-invested, I sell every 50-60 DOW points. If not, then every 100 points.

I sell the same spread again when I like the new credit that is available. But, I prefer to move up one strike and open a new position that is further OTM as long as I can to achieve my minimum potential return on margin (and that minumum varies for each investor).

Mark

 

[yip1997]

Quote from dagnyt:

I sell call spreads on rallies - regardless of how bullish I am or how high I think the market is going. After 30 years in this business (most as a CBOE market maker), one thing I know for sure is that my predictions concerning market direction are worthless. Thus, I just keep scaling by selling calls as we rally and puts as we decline.

I stop selling when I have either used all the margin I care to use or portfolio risk is sufficient. This method does not work well in sustainable market moves, but has been successful recently.

Mark

Mark,

I appreciate your insights in the market behavior. In fact, I usually sell naked calls after a huge rally, and sell puts after sell-off.

So you scale in your position? Do you add to the same position (i.e. using the same strikes), even though your position is losing on paper?

I like to get your opinion in this matter as I usually try to hedge my position in a sustaining market move. To give you an example, suppose I sold a naked call ( or vertical call) on a rally, and if the market continues to move up, I will sell a naked put so as to gain a partial hedge against the unusual and sustaining market movement.

 

[yip1997]

Quote from dagnyt:

If under-invested, I sell every 50-60 DOW points. If not, then every 100 points.

I sell the same spread again when I like the new credit that is available. But, I prefer to move up one strike and open a new position that is further OTM as long as I can to achieve my minimum potential return on margin (and that minumum varies for each investor).

Mark

Mark,

Just saw your response here. When you see a better credit with the same strikes, it means you have a losing position already. How do you hedge against your losing position? I always wonder if it is better not to hedge? I believe statistically hedging is a losing game, but not hedging will strike me out.

 

[rallymode]

Quote from dagnyt:

After 30 years in this business (most as a CBOE market maker), one thing I know for sure is that my predictions concerning market direction are worthless. Thus, I just keep scaling by selling calls as we rally and puts as we decline.

I wonder if you were doing this same strategy in 87, 97 or 01.

 

[yip1997]

Quote from jeffm:


That's wrong imo. Better to be in cash if you don't have the setup you want.

Just can't resist not trading when you want to keep compounding.

open rut aug 650/640 put for a credit of 0.5

risk = 9.5
ROR = 5.26%

Wish Coach can get me a better ROR again?

 

[Beachie]

Newbie here. Someone tell me why this credit spread isn't a free lunch please.

ES Sept 1330 call 11.00 x 12.25
ES Sept 1335 call 3.75 x 4.20

Thanks.

 

[dagnyt]

Quote from yip1997:

Mark,
So you scale in your position? Do you add to the same position (i.e. using the same strikes), even though your position is losing on paper?

Yes. But, I much PREFER to open a new position with higher strikes.

Let's say I my minimum requirement is to collect a credit of 2% of the margin (50 cents for a spread with strikes 25 points apart) and I sell a 50-point SPX diagonal spread for a credit of $1.00.

If the market rallies and if I still want to sell more spreads, I would try to sell a 50-point spread using the same months as before - but with higher strike prices and collect at least $1.00.

If I cannot collect that $1.00, I have 3 choices: a) Wait until I can get the dollar; b) setlle for less than $1.00; c) add to the original spread at a price that is (obviously) higher than the $1.00 I received before.

To me additional safety is far more important than higher potential profits. Thus, choice c) is the least desirable.

Mark

 

[dagnyt]

Quote from yip1997:

Mark,
When you see a better credit with the same strikes, it means you have a losing position already. How do you hedge against your losing position? I always wonder if it is better not to hedge? I believe statistically hedging is a losing game, but not hedging will strike me out.

Im general, I don't hedge against the losing position. What I hope to be able to do is sell put spreads on the next decline.

My goal is to have half my position in call spreads and half in puts. (I never have a market bias.)

Today, due to recent rallies, I am slightly off balance, and am short more calls than puts (measured by margin requirements). But I am not off by much and am willing to carry these positions for now. I intend to sell some puts at the first reasonable opportunity (tried this morning, but missed the trade).

I will not go crazy. Thus, if I ever feel I am off by too much, then I either stop selling calls, or sell put spreads, even if the market has not declined.

Mark

 

[dagnyt]

Quote from rallymode:

I wonder if you were doing this same strategy in 87, 97 or 01.

Nope. In '87 it was worse. Had tons of naked puts. Not a happy outcome.

In '78 and '84 I was short a boatload of calls.

Today, as a public customer, I am MUCH more risk adverse.

Mark

 

[arbtrader]

Quote from Beachie:

Newbie here. Someone tell me why this credit spread isn't a free lunch please.

ES Sept 1330 call 11.00 x 12.25
ES Sept 1335 call 3.75 x 4.20

Thanks.

I havent checked but that 1330 looks like an OCT to me not a Sept, hence a 30 day naked write (post Sept exp) not a free lunch