SPX Credit Spread Trader

[rallymode]

Quote from optioncoach:

Rally..

Ratioed Call diagonals can be played pretty well using your CTM method. When you select strikes CTM at an overbought or market top, the credit is pretty large and when the market pulls back you can take a quick profit or let the short call expire worthless and keep the long for more money potentially down the road.

phil,

good point. It's a strat i favor actually and i havent talked about it here, but due to its gearing(i prefer them slightly OTM, slightly upside gamma) i reserve it for strong reversal signals. I also look for nice skews. So major indices are pretty much out.

Normally, I'd rather do a simple vertical when not real sure on direction and/or adjust to a ratio spread later on to match signal strength.

As a matter of fact, i was doing this same strat in the bull market in 99, ratio spreads on high tech names on extended rallies and convert into credit flies on pull backs. Call it crazy but my equity portfolio almost blew me up(brand new trader) if it wasnt for my options positions. Lotsa juice back then. Not so much anymore.

For obvious reasons, i rarely do the put side unless i can do them 20% OTM as pure vega plays just like we discussed not too long ago. Admittedly, i've been experimenting with exotics for these "call the market top" scenarios, so soon i may not do any more SPX credit spreads.

Just my 2 cents.

EDIT: i think i tried to cram too much info in 1 post.

 

[momoneythansens]

Quote from Cache Landing:

Yeah, its called long puts.

Doh! The secret is out

 

[Prevail]

did you really buy the higher strike and sell the lower strike?

Quote from jeffm:

For educational purposes, here is an update on an ES put diagonal I just closed.

8/14 ES 1281 VIX 13.5
I sold SEP 1200P and bot OCT 1230P for a net debit of (2.25).
9/12 ES 1319 VIX 12.36
I closed the diagonal for a credit of 1.75 for a loss on the trade of (0.50).

I could have exited yesterday morning for near b/e, but was busy with work and got caught unaware with the surge later in the day.

In the end, ES is over 30 points higher than when I entered the put diagonal. VIX is a full point lower, and I could have timed my exit better. Yet I still only lost 0.50 on the trade. I also had options to sell against the long 1200, but chose to just clear this one off the books.

I also have a -SEP1260P/+OCT1230P that is about 0.50 above b/e. If I can get a good price to cover the 1260 shorts, I will close them and create a bull put spread with the OCT1230.

I am experimenting with a 1lot SEP EW 1335C / OCT ES 1350C diag entered for a debit of (0.75). VIX has already dropped quite a bit on the turn up, so I am relatively protected from a volty collapse. The 1335 target is a few points above the most recent swing high.

 

[rallymode]

Quote from momoneythansens:

Doh! The secret is out

what? people still buy premium? I thought IV_trader was the only one supporting the bids these days.

 

[tplast]

Quote from tplast:


I'm now delta negative, theta positive and vega positive. Unless we get a huge rally, I think I can now let my position be for a few weeks.

Haha, not exactly a huge rally but enough to put my position at a 16% loss. I still think that will be lower than 1335 on the december contract by october expiration, but better start managing the risk.

I'll go delta neutral using futures at 1330. For about 20 days, this will put a cap on my maximum loss to about the same level as today. If by then we are above 1340, I'll close everything and be not worse than today. If we go down, then remove the hedge and go back to the original play.

This is of course, not counting volatility. A 5% decrease will widen the max loss to 24%.

 

[blure2]

Poop! Took my first stab at a put diagonal and blew it. Lost approx. 2G's including commish. I sold the Sept. 670P and bought the Oct. 660P on the RUT. It went north and my $'s went south. I had $7250 locked up on a call credit spread which went south along with the put diag.

Poor entry timing, I guess. Back to the drawing board and the virtual trader for alot more practice.

Bob

 

[ready]

One day does not a market make.

 

[dagnyt]

Quote from blure2:

Poop! Took my first stab at a put diagonal and blew it. Lost approx. 2G's including commish. I sold the Sept. 670P and bought the Oct. 660P on the RUT. It went north and my $'s went south.

Poor entry timing, I guess.

Bob

Collect cash credits instead of paying debits and you will make a profit if the market runs away from your strikes.

Mark

 

[Prevail]

alas, someone else who agrees. gotta keep that expiration line on the risk graph above 0.

Quote from dagnyt:

Collect cash credits instead of paying debits and you will make a profit if the market runs away from your strikes.

Mark

 

[ryank]

Quote from rallymode:

ryan,

its no coincidence IMO. If you look at the calendar, the expiration week is usually very heavy on key reports. Once they are released and things are not too bad, bids on puts are pulled and vix collapses. It's like clock work. From my experience, expiration week stat volty usually doesnt correlate well with the vix. Of course there are exceptions.

Just something to think about with regards to the prospects of adjusting spx vega plays.

Now you tell me lol! I went into the weekend really strong and gave some back these last 2 days. I should still end up around +2%ish on my diagonal positions. Actually closed out my low end today just under b/e, making money on my middle puts and upper calls right now. Looking for 1 more up day and might close those out or make some kind of move into October positions with them. More than likely start fresh with new Oct positions.