SPX Credit Spread Trader

simplyloge · Aug 13, 2006

Quote from cdowis:

I see chop. I read elsewhere that Buffett sez that the market will be relatively choppy for the next several =years=.

For what it's worth.....C. Nenner was on cnbc last week. Calling for small move up until Sept 4,5......then another leg down until Dec31 or 1st week of Jan......then major move up thru Feb 08. Seems to have a very hot hand right now. He has been spot on calling tops and bottoms.

blure2 · Aug 13, 2006

RichardRhimes wrote:

Mine is as well. Here it is 4am on a Sun and I'm reading ET Actually I'm seriously considering taking a real break from trading after this Exp. I believe I've earned a break and the last two vacations have been during Op exp week June esp difficult. July and Aug have been good and I'm beyond my personal goal for the year...so why not I've worked my way into a 1150/1175/1200 put B-fly for a credit of .20 (mid is debt of .70) for Sept and I could just let all the other trades go until Sept and not take on any new positions.

My biggest problem is HOW do you turn your mind off in regards to trading? How do you say I won't think about positions, won't look at the statements or check out of ET. I don't really think any of you guys can do it either so don't know why I'm thinking out loud Other than physically going to a place with no news/phones etc I honestly don't know how to find that balance we need to be able to keep going for the long haul sorry to be OT but would certainly welcome any suggestions if any of you just happen to be successful in taking a mental vacation from trading. (esp. if trading is only what you do for income)...and coach don't tell me to have a baby

Well, Richard, there's always sex, drugs or rock & roll. My choice is to go fly my ultralight airplane. It's the best therapy I've found. But I also have to say that trading is way more fun than my day job ever was.

Good luck,

Bob

Sailing · Aug 13, 2006

That would be the same answer to whether you choose Credit Spreads or Iron Condors. Range bound or dirctional.

Diagonal and Calendars are a VEGA play with some delta, if you set them up that way.

Credit Spreads and Condors are mostly VEGA nuetral... they tend to be more or less a THETA play.. (even though that's debateable and a whole other discussion) with directional DELTA if spread oriented.

IMO, playing Put Calendars... it's a WIN-WIN situation. I usually set them up a strike or two OTM.... then directional movement, DELTA, and VEGA are both helping the position. If the trade goes against you ... it's an inexpensive loss... plus you're still able to roll into another Put Calendar at a better entry price.

And on the same note.. I much prefer Put Diagonals for the same reason.

The majority of my strategies are PUT oriented. Just seems more logical to play the WIN-WIN situation (Delta + Vega = $$)

M~

Quote from cdowis:

Question: anyone can give me some hints on what criteria they use to decide whether to do double diag vs calendars.

thanks

hobster · Aug 13, 2006

Has anyone tried doing a credit spread in IB? I'm confused by the descriptions I get when placing a credit spread on a regular option and the SPX.

If I open a bear call spread on Goog, I get this desc from IB, which is correct.

To buy 1 vertical spread means:

1. Buy 1 goog sep06 450 call
2. Sell 1 goog sep06 460 call

To sell 1 vertical spread means:

1. Sell 1 goog sep06 450 call
2. Buy 1 goog sep06 460 call

However, when I try to open a bear call spread on SPX, I get this.

To buy 1 bear spread means:

1. Sell 1 spx sep06 1310 call
2. Buy 1 spx sep06 1320 call

To sell 1 bear spread means:

1. Buy 1 spx sep06 1310 call
2. Sell 1 spx sep06 1320 call

They are completely opposite.

cdowis · Aug 13, 2006

Good to talk with you again, Sailing.

Over the past couple months of trading these positions, a few observations (ignoring IV for the moment):

1. The IC is neutral, poor risk reward. Very weak at the extremes as they approach the shorts, but strong in the middle. Max profit anywhere outside of the shorts.

2. Double diag neutral, good r/r -- 1: 2-4. Tolerant of moves to the shorts, but has a sag the middle. (there can even be a loss in the middle) While the IC may legitimately look for FOTM, the dd would have likely have a severe sag. Max profit at or near the short.

3. Calendar is neutral, excellent r/r. Relatively intolerant even of "moderate" moves. Max profit if market moves in a very small range, at or near the short.

4. Your suggestion of the call vertical / put diag appears to be somewhat bearish. Even with the IV assisting, it is intolerant of bullish moves since both the call and the put legs are losing, while bear moves are very profitable.

ryank · Aug 13, 2006

Quote from RichardRimes:

Mine is as well. Here it is 4am on a Sun and I'm reading ET Actually I'm seriously considering taking a real break from trading after this Exp. I believe I've earned a break and the last two vacations have been during Op exp week:eek: June esp difficult. July and Aug have been good and I'm beyond my personal goal for the year...so why not I've worked my way into a 1150/1175/1200 put B-fly for a credit of .20 (mid is debt of .70) for Sept and I could just let all the other trades go until Sept and not take on any new positions.

My biggest problem is HOW do you turn your mind off in regards to trading? How do you say I won't think about positions, won't look at the statements or check out of ET. I don't really think any of you guys can do it either so don't know why I'm thinking out loud Other than physically going to a place with no news/phones etc I honestly don't know how to find that balance we need to be able to keep going for the long haul sorry to be OT but would certainly welcome any suggestions if any of you just happen to be successful in taking a mental vacation from trading. (esp. if trading is only what you do for income)...and coach don't tell me to have a baby

The only way I have been able to take a full break is to go on vacation to a cabin with no phone or internet service. I was a little jittery the first day or two without my market and ET fix

. I then settled into looking at the paper every day or two just to see what the market did.

I honestly enjoy thinking/working on my various positions every day (as I think you do) but I do get a little burnt out from time to time. The best cure for me has been to get away from the computer and go somewhere for a few hours where I don't have access at all even if I wanted to. In the winter you can do some skiing, in the summer you can do some hiking or biking. Hitting a few trails on my bike is a great way to work out some stress and keep myself away from the computer and other distractions. Usually that does the trick by getting me to focus on something other than options and get some exercise at the same time. Usually when I am done I am ready to start hitting the ToS screens again

.

dagnyt · Aug 13, 2006

Quote from hobster:

Has anyone tried doing a credit spread in IB? I'm confused by the descriptions I get when placing a credit spread on a regular option and the SPX.

If I open a bear call spread on Goog, I get this desc from IB, which is correct.

To buy 1 vertical spread means:

1. Buy 1 goog sep06 450 call
2. Sell 1 goog sep06 460 call

To sell 1 vertical spread means:

1. Sell 1 goog sep06 450 call
2. Buy 1 goog sep06 460 call

However, when I try to open a bear call spread on SPX, I get this.

To buy 1 bear spread means:

1. Sell 1 spx sep06 1310 call
2. Buy 1 spx sep06 1320 call

To sell 1 bear spread means:

1. Buy 1 spx sep06 1310 call
2. Sell 1 spx sep06 1320 call

They are completely opposite.

They are NOT opposite.

With GOOG, the IB system used the term "vertical spread" and correctly described the trades. When 'buying a vertical spread', you buy the more expensive option and sell the less expensive option. That's bullish for a call spread and bearish for a put spread.

With SPX, the IB system used the term "bear spread" - and again CORRECTLY described the trades. When 'buying a bear call spread', you collect a cash credit and buy the higher (lower priced option) strike call and sell the lower - which is what the IB system told you (note: they listed the sell before the buy, and perhaps that's what confused you.)

Mark

Sailing · Aug 13, 2006

Quote from cdowis:

4. Your suggestion of the call vertical / put diag appears to be somewhat bearish. Even with the IV assisting, it is intolerant of bullish moves since both the call and the put legs are losing, while bear moves are very profitable.

Hope I'm understanding this correctly....

The Vertical Call Spread IS tolerant to VEGA, which is why trading Call Credit spreads with Put Diagonals helps to play into the VEGA mode as best as possible.

SPX bullish moves occur in tandem with lower volatility. So call credit spreads nuetralize the volatility. OTOH, bearish SPX movement increases volatility and Calendars or Diagonals will benefit nicely.

M~

Sailing · Aug 14, 2006

SPX Double Diagonal Update:

Last week we experienced lower volatility and middle-range spread location for the Double Diagonal. This is absolutely the worst case scenario for the strategy.

The position is still profitable, but has fallen from 15.5% to 8% in one week and with one week to go.

We were tempted last week to roll the positions from diagonals into SEP credit spreads, thus nuetralizing VEGA.... but we didn't.

What scares me most about the market is the complacent attitude and lack of FEAR after what could have been a terrible terrorist week. Hard to believe... but people are shrugging off $3/gallon at the pump... terrorist threats in the skies, and inflation concerns....

Hmmm....

Cache Landing · Aug 14, 2006

Quote from RichardRimes:

Mine is as well. Here it is 4am on a Sun and I'm reading ET Actually I'm seriously considering taking a real break from trading after this Exp. I believe I've earned a break and the last two vacations have been during Op exp week:eek: June esp difficult. July and Aug have been good and I'm beyond my personal goal for the year...so why not I've worked my way into a 1150/1175/1200 put B-fly for a credit of .20 (mid is debt of .70) for Sept and I could just let all the other trades go until Sept and not take on any new positions.

My biggest problem is HOW do you turn your mind off in regards to trading? How do you say I won't think about positions, won't look at the statements or check out of ET. I don't really think any of you guys can do it either so don't know why I'm thinking out loud Other than physically going to a place with no news/phones etc I honestly don't know how to find that balance we need to be able to keep going for the long haul sorry to be OT but would certainly welcome any suggestions if any of you just happen to be successful in taking a mental vacation from trading. (esp. if trading is only what you do for income)...and coach don't tell me to have a baby

If you really want to get away for bit to a beautiful place where the people are great. Costa Rica!!! Just third world enough that you don't have internet at your fingertips. You can check in on occassion just to see how things are going at a little internet cafe. Surfing on the one cost, scuba/snorkling on the other. I could recommend a couple great little beach houses that you can rent by the day/week.

Personally though I am getting amped up for a great trip to Brazil. My brother-in-law spent a couple years there and was showing me some stuff the other day. Told him I'd pay if he wanted to come act as tour guide/interpreter. It's gonna be great if I can get the time to do it!!