SPX Credit Spread Trader

my understanding is margin is a clearing firm issue. I do know that OX is going to self-clearing so GS changed the rules on them and a bunch of ppl with OX are getting shafted right now...but once OX becomes self-clearing they have made it clear that only one side of an IC will be charged.

I don't see how CBOE can actually make up a rule like that? Only the products THEY sell would be affected thus it would be a broker's nightmare.

I agree...how reliable is the info?
 
Still holding onto my sep/oct 1260/1240 put -- little change in premium up or down. The other three positions were closed out yesterday at a total of 25 cent loss.

As part of my trading plan, I am reducing my position size by 50%.
 
Quote from burrben:

Where did you hear this?
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A friend who is in a trade this month (unlike myself) got a notice from his trading service (www.wiseoptions.com) letting him know of the new rules. Also, he got a margin call from OX but told me OX would not enforce the call per my previous post.

Hopefully per Richard Rimes' post we are correct that once OX switches to self-clearing from GB this won't be an issue.
 
Well ES is below 1315 at close so my EW options will expire worthless. I will update my diagonal position tomorrow when I decide whether to close or let it ride a little more.....
 
Here it is guys. A friend received this from OX:

Dear XXXXXX:

We currently have an ongoing issue with the CBOE regarding the release of option requirements on complex spreads (condors). This issue has led our clearing firm, Goldman Sachs, to hold requirements on both side of your complex spreads and therefore preventing the withdrawal of funds from your account. Although, we are not currently enforcing these margin calls, any withdrawals from your account will be rejected based on the current increased option requirements. However, once we are self-clearing (approximately 2 weeks) we will allow accounts to withdraw funds from their accounts while we continue to petition the CBOE. In the intern, we ask that you either not withdraw funds from your account (or write checks) or close out of one side of you condor if you wish to withdraw funds. Otherwise, no action is currently required in reference to this email notice.

Here's some additional info:

Dear XXXXX

We are notifying you of an additional call of $xxxxxx for your account, xxxxxx, due to an interpretive issue regarding the structure of an iron condor.

Our online, software-based requirements work on the understanding that a condor must have equidistant call and put spreads, but as long as there some distance between the spreads, the interval between the spreads themselves can be greater or smaller than the interval between the legs of each spread.

However, we have been notified that a more conservative interpretation of the wording in the regulatory requirement - that each of the four options must maintain an equal and equidistant relationship between the strikes. This means that your account will not receive the benefit of the lower requirements offered by the iron condor, and a margin call may be issued for your account (although this will not appear online).

We are currently seeking relief from our regulator, however, the requirements on both sides of any condor that does not maintain an equidistant interval between each of the four options will increase the clearing firm's requirements and that may prevent withdrawals and other activity if the differential is significant. Again, you may not notice this difference online.

We regret any inconvenience this may cause you. If you should have any questions about your account or your cash available, please feel free to contact us at margins@optionsXpress.com or call us at 1-888-280-8020 and ask to speak with a Margin Specialist.

Thank you,

Sincerely,

Fred E. Cadena
Assistant Vice-Presedent, Risk and Margin
optionsXpress, Inc.
 
I am planning on switching 100% of my money from OX to TOS. I received a penalty last week because I made a mistake. I was entering a SPY 129/128 debit spread and I instead entered a credit spread. I ended up receiving 0.20 instead of paying 20 cents. When I saw that . I closed the trade. GS considers it as Same day trading and reduces my account trading level from 4 to 2 so I can't do any Spread trading.

I talked to Sarah from margin and she begged me to stay with them because they are going to have their own Clearing firm in the near future (2 weeks or so).

Two weeks or so will be expiration and I will need my money for new entry.

OX doesn't work the way I expected it. I have my money tied up in Calls Spread now; I am waiting to close the trades and then move my money

Quote from rsflint:

A friend who is in a trade this month (unlike myself) got a notice from his trading service (www.wiseoptions.com) letting him know of the new rules. Also, he got a margin call from OX but told me OX would not enforce the call per my previous post.

Hopefully per Richard Rimes' post we are correct that once OX switches to self-clearing from GB this won't be an issue.
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OK, coach's book should arrive in the mail today, but I couldn't stop thinking about hedging strategies based on posts here. I've written down a few and the one that keeps jumping back into my head that seems to suit my taste is picking up the underlying futures contract (assuming I'm trading the ES of course). It seems like upon my spread's execution, I can also put in a limit order to buy or short x number of contracts to hedge.

Good:
This seems like an easy to understand, easy to execute (liquidity wise) strategy. It can potentially be a near perfect hedge if the fills are right and the underlying doesn't gap.

Bad:
I'm not sure how well this scales. Obviously in a 1 contract situation, it seems perfect. Also will require a wee bit more babysitting get in and out (although that seems true w/ any hedging strategy).

OK, so what am I missing?
 
Quote from spreadn00b:

OK, so what am I missing?
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Whipsaw risk (loss) > premium received from credit spread.

Simplistic Example:

You have a 10 point SPX vertical sold for $0.50

You are therefore trying to hedge $9.50 risk on the spread but the cost of the hedge cannot exceed $0.50!!!!

- Successful execution of this strategy is a lot easier said than done.

- Some suggest that it is not prudent to hedge a limited risk position with an unlimited risk vehicle.

- Using GTC limit orders for futures position leaves you open to massive whipsaw risk. Look at past events to see how wrong this approach can turn out!

- If you insist on hedging with futures, might want to consider hedging light but hedging early moving into the short strike for possible convergence gains.

- The vertical is already a hedged position. Max loss is known at inception.

- Best hedge is to use a position size you are comfortable with.

- How to hedge a credit spread is the number one question on this thread i.e. you will find extensive discussions of this topic within these pages.

MoMoney.
 
Spreadnoob I'm struggling with it as well. What I have done is set a "mental" trigger. When I think my short strike is going to be threatened buy ES in a ratio of 1:10...one ES for every 10 SPX contracts. Or sell if the put side is threatened. The problem I have is that I'm more discretionary than mechanical and It seems to me with ES you have to be very mechanical. The other problem is do you want to make money on the ES trade or are you willing to lose money because after all it IS a hedge or insurance? That would make a difference in your closing strategy. I do agree that ES is probably the best/easiest way to hedge.

Coach you have been trading ES, are you still daytrading or are you just doing options on the futures? Any tips you want to pass our way:D

while I was typing this up Mo was giving the definitive answer! He is right and that is why in the IRA I don't try to hedge...just manage the trade, but having small success in the cash account with ES is going to my head:p
 
You make a lot of very fine points and I thank you. I agree that it will be a lot easier said than done. It seems that all hedging strategies require a lot of babysitting. This one seemed the lesser of all evils.

Point taken on the hedging w/ unlimited risk. I'll add that to my list of cons for this strategy.

I think when you say "moving into the short strike" you mean right around the time short strike is hit (i.e. short @ 1340, start hedging @ 1340.01) or do you mean shortly before the short strike is hit?

"Best hedge is to use a position size you are comfortable with." ... absolutely!! This is what I'm trying to determine (and its probably why, as you say, its the number question on this thead). I plan on trying this strategy for a few months using one contract and hedging a few ways.

Now I don't like to lose money, but I may simply bring my strikes in a little closer than usual on a 1 contract position and try some hedging strategies. It's cheap education and I know from experience that this type of stuff (i.e. learning your own risk level, position size, etc) can't be fully determined on paper.

Thanks again for your reply.

Quote from momoneythansens:

Whipsaw risk (loss) > premium received from credit spread.

Simplistic Example:

You have a 10 point SPX vertical sold for $0.50

You are therefore trying to hedge $9.50 risk on the spread but the cost of the hedge cannot exceed $0.50!!!!

- Successful execution of this strategy is a lot easier said than done.

- Some suggest that it is not prudent to hedge a limited risk position with an unlimited risk vehicle.

- If you do decide to pursue hedging with futures, might want to consider hedging light but hedging early moving into the short strike.

- The vertical is already a hedged position. Max loss is known at inception.

- Best hedge is to use a position size you are comfortable with.

- How to hedge a credit spread is the number one question on this thread.

MoMoney.
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