SPX Credit Spread Trader

Cache Landing · Aug 4, 2006

Quote from rallymode:

well, given the 5 point premium in the ES, i wouldnt say its better. If we rally hard in AUG, it will be more painful for me to adjust as i will be ATM/ITM quicker. I too wasnt getting filled on the spx so i canceled(IB got a nice lunch on me) and legged into the ES. I cant believe the CBOE guys filled a boy from Utah faster than a homie.

Hey, I had to leg in. It was no easy execution for me either. But at least I got in before the drop.

yip1997 · Aug 4, 2006

Quote from momoneythansens:

http://www.elitetrader.com/vb/showthread.php?s=&postid=1054097#post1054097

Thanks, Mo.

Can anyone share how they use POT? Cache? Anyone knows how they calculate it? Using formula or Monte Carlo?

Cache Landing · Aug 4, 2006

Quote from momoneythansens:

http://www.elitetrader.com/vb/showthread.php?s=&postid=1054097#post1054097

See YIP, that's why we all refer to Mo for this stuff. He is kind of like GOOG in that he can find anything. In fact I think he is going public beginning of next year. That true Mo?

Cache Landing · Aug 4, 2006

Quote from yip1997:

Thanks, Mo.

Can anyone share how they use POT? Cache? Anyone knows how they calculate it? Using formula or Monte Carlo?

I've gotta go for now, but if I've got some time later I'll throw something out. I'm sure RR can give some insight.

cdowis · Aug 4, 2006

Bought IWM Aug/Sep 69 put calendar spread @ 85.

IV is in mid range, and market is range bound.

Used 2xES futures to protect my call vertical. Got out a $175, and market is back down.

This is the first time I have used futures to hedge a position. WOW.

Li Ka Shing · Aug 4, 2006

Quote from yip1997:

Thanks, Mo.

Can anyone share how they use POT? Cache? Anyone knows how they calculate it? Using formula or Monte Carlo?

I too want to know how best to use the POT, or whether that is just another useless diversion.

Because POT, POE, delta (some people believe delta is probability of ending ITM), etc all seems to be detached from market TA. It doesn't take into regard, for instance, whether the market just penetrated a key S/R, or whether the prior day there was a huge bullish engulfing candle, and so on so forth. In other words, they are too fixated on probabilities, IV, statistics, they become a detached mathematical calculations based on formulas. I thought this is actually misleading for us traders, for the practical purpose of trading. I never really knew how to integrate such POT types of data into practice, or rather, I found them to be undependable to be traded on and should be avoided.

If you guys' experience agree with this, or if you have found them useful instead to be part of the considerations, let's discuss it further....

momoneythansens · Aug 4, 2006

Quote from Li Ka Shing:

I too want to know how best to use the POT, or whether that is just another useless diversion.

Because POT, POE, delta (some people believe delta is probability of ending ITM), etc all seems to be detached from market TA. It doesn't take into regard, for instance, whether the market just penetrated a key S/R

Do you believe your options are priced on TA,S/R or on volatility -> probability?

cdowis · Aug 4, 2006

I have advised TOS to allow skewness in their probability analysis. Bell curve is largely useless when the market is near S/R. Have only see one software program which allows skewed probability curve.

Probability is especially of interest in calendars.

jeffm · Aug 4, 2006

POT, POE, etc are derived from formulas, yes. But those formula's include IV, which comes from option pricing, which reflects the sum-total opinions of all the market participants. You ask "why doesn't POE reflect obvious TA like support/resistance?" But the elliot wave guy is saying "Why doesn't POE reflect the obvious fact that we are in a 3rd wave down?" The answer to both questions is that it does reflect those things since it uses IV.

The question for you is, "Is the POE number important to me?" If you believe your TA gives you a better read on the market, should you even bother with POE? Its just a boiled down number that tries to reflect the current market. The TA world is replete with such numbers.

Quote from Li Ka Shing:

Because POT, POE, delta (some people believe delta is probability of ending ITM), etc all seems to be detached from market TA....they become a detached mathematical calculations based on formulas.

cdowis · Aug 4, 2006

Quote from jeffm:

"why doesn't POE reflect obvious TA like support/resistance?" But the elliot wave guy is saying "Why doesn't POE reflect the obvious fact that we are in a 3rd wave down?" The answer to both questions is that it does reflect those things since it uses IV.

The probability bell curve does not take S/R into account. IV has nothing to do with it.

Let us suppose, for example, that a market has made a large move down, close to major support. It is close to bottom, *in your opinion*.

Do you think it is =just= as likely to go down as to go up? If so, then the bell curve is cool. If not, if you think it is very unlikely to continue downwards, bell curve is worthless, regardless of the IV.