SPX Credit Spread Trader

[Sailing]

Sept/Oct Double Diagonal Update

For those of you who requested the end of the month update, here it is. It's in plain English, so the majority of us will be able to follow. This was the primary trade for your investment group on the Diagonal side. We also have an Oct/Dec position.

The attached word documents is illustrated as well with the beginning risk profile and ending profile. Notice how VEGA played out over the past three weeks of this position. This was only a three week adventure.

Murray

 

[Heatheranderson]

Double Diagonal analysis:

STO 10 Sept 1250 PUT -- $2.6
BTO 10 Oct 1225 Put --$5.9

STO 10 Sept 1325 Call -- $2.3
BTO 10 Oct 1350 Call--$4.6

------------------------------------------------
Total $3.3 + $2.3 = $5.6 debit

At Expiration:

BTC 10 Sept 1250 PUT -- $0.25
STC 10 Oct 1225 Put --$2.25

BTC 10 Sept 1325 Call -- $0.375
STC 10 Oct 1350 Call--$4.7
-----------------------------------------------

Total $2.25 + $4.7 = $6.95 Credit

Profit = $6.95 - $5.6 = $1.35/$25= 5.4%


Murray, did i get it right?. Oct PUT and CALL are $2.25 and $4.7 because SPX is on one extreme side.what if it is right in the middle of the range(1250 - 1325). Is there a chance of loss also?.

 

[ryank]

Quote from Heatheranderson:

Double Diagonal analysis:

STO 10 Sept 1250 PUT -- $2.6
BTO 10 Oct 1225 Put --$5.9

STO 10 Sept 1325 Call -- $2.3
BTO 10 Oct 1350 Call--$4.6

------------------------------------------------
Total $3.3 + $2.3 = $5.6 debit

At Expiration:

BTC 10 Sept 1250 PUT -- $0.25
STC 10 Oct 1225 Put --$2.25

BTC 10 Sept 1325 Call -- $0.375
STC 10 Oct 1350 Call--$4.7
-----------------------------------------------

Total $2.25 + $4.7 = $6.95 Credit

Profit = $6.95 - $5.6 = $1.35/$25= 5.4%


Murray, did i get it right?. Oct PUT and CALL are $2.25 and $4.7 because SPX is on one extreme side.what if it is right in the middle of the range(1250 - 1325). Is there a chance of loss also?.

I modeled this in ToS really quick. Yes, at current VIX levels you would have a loss if the market was in the middle BUT it all depends on what the VIX level would be if the market was down at say 1275 or whatever. If the market dropped quickly down to that level then VIX would more than likely rise and possibly get you to b/e or profit. If the market drifted lower then VIX might not rise as much so you could be showing a loss in that middle range. So, to sum it up, it depends a lot on volatility.

 

[ryank]

Quote from Heatheranderson:


Murray, did i get it right?. Oct PUT and CALL are $2.25 and $4.7 because SPX is on one extreme side.what if it is right in the middle of the range(1250 - 1325). Is there a chance of loss also?. [/B]

Yes there is a chance of loss, if the SET tomorrow is above 1325 you will lose money. How much depends on how much above 1325 the SET is.

 

[JimPos]

Murray,
When you calculate your return, do you calculate it on margin of only one side of the calendar or margin on both sides. I use OX and they require margin on calendars on each side of the double diagonal. So for your double diagonal it would be $50000.

Thanks for all the great information and graphs.

Jim

Quote from Sailing:

Sept/Oct Double Diagonal Update

For those of you who requested the end of the month update, here it is. It's in plain English, so the majority of us will be able to follow. This was the primary trade for your investment group on the Diagonal side. We also have an Oct/Dec position.

The attached word documents is illustrated as well with the beginning risk profile and ending profile. Notice how VEGA played out over the past three weeks of this position. This was only a three week adventure.

Murray

 

[El OchoCinco]

No fill on the 1220/1225 and the 1225/1235 SPX OCT spread orders I had running most of the day. Of course I was being aggressive on the limit price but @#$% it...

 

[ryank]

Quote from JimPos:

Murray,
When you calculate your return, do you calculate it on margin of only one side of the calendar or margin on both sides. I use OX and they require margin on calendars on each side of the double diagonal. So for your double diagonal it would be $50000.

Thanks for all the great information and graphs.

Jim

ToS only charges on one side, not sure why OX does both sides. I plugged it into the ToS software and I get $25k as margin plus the cost of $5.8k to enter the position.

 

[Sailing]

Just returned home from attending a STAR trader workshop. It just hurts me to see all those people spending all that money on beginning options education.... ouch. There is just a huge amount of information on the net... for free.. just a little research and they could save themselves $$$

Ok... back to the Diagonal, yes, as Ryan pointed out there is a chance of a loss in the middle and at each of the ends.. and yes, it all has to do with volatility.

One thing to think about, if the market would have dropped toward the middle, the potentially loss area, it would probably do so with an increase in Volatility, which in turn would cause it to be profitable, (as you could see in the first orginal illustrated risk graph). Even though the market did bleed volatility, at no point were we ever in a losing profit zone, and furthermore, there were two volatility spikes which caused great exit points for nice profits... even in the middle area. Last week when we spiked down to 1290 on the open, the position was 16% profitable. And that is only being in the trade for two weeks. (Probably should have exited at that point... but I was really hoping for more downside.. and an even bigger spike... GREEDY).

Our return in calculated based on required margin for the trade. With TOS, that equates to $25,000. They margin only one side. That said, how much is really at RISK.... I mean... even if the position moves up say past your short... your far out month long is making money to help cover the loss, so the risk.. is not truly defined... certainly less the $25,000. Even it the index spiked up to 1350... yes the short would be $25,000.... but the 1350 long would have some serious value in it....

I can't stress how less stressful trading Diagonals is than Credit Spreads. I even think Coach is feeling it too!

Now with 'haircut' margin, the at risk margin would be much less... according to the MAV. I should have asked him to do an analysis.

Anyway, hope SET is below 1325 tomorrow.... saying prayers for a .3 or higher CPI number.

Murray

Quote from JimPos:

Murray,
When you calculate your return, do you calculate it on margin of only one side of the calendar or margin on both sides. I use OX and they require margin on calendars on each side of the double diagonal. So for your double diagonal it would be $50000.

Thanks for all the great information and graphs.

Jim

 

[rdemyan]

Jim:

Seriously recommend that you consider switching to ToS. Many of us here have and virtually everyone is very happy they did (I think even piccon came around). It'll be different at first, but once you get used to it, you'll be very thankful that you did.

If you sign up with ToS, tell them that you want the Coach Phil or The OptionClub rate which is $1.25 per option. I currently have an OX account and also have that rate, but I'm going to transfer it to ToS. I don't even use the OX account anymore and it's just sittin' there with margin I could be puttin' to work.

We've had a lot of discussions on this board regarding ToS so you might want to check out some old posts.

EDIT: BTW: Those great charts that Murray displays are all from ToS.

Quote from JimPos:

Murray,
When you calculate your return, do you calculate it on margin of only one side of the calendar or margin on both sides. I use OX and they require margin on calendars on each side of the double diagonal. So for your double diagonal it would be $50000.

Thanks for all the great information and graphs.

Jim

 

[RichardRimes]

Jim TOS has even better rates if you trade 20+ contracts...they are truly awesome..give it a try..they will beat the heck out of OX