SPX Credit Spread Trader

Final Sept/Oct Double Diagonal Update:

It's always a little unsettling waiting for SET when you still have a potential short among the midst... but the 1323 SET was appreciated and welcomed by all of us shorting the 1325c this morning.

Although our trading plan called for closing all shorts within 10pts of SET, the diagonal is a bit more forgiving than the credit spread. In fact, at the open, the Oct 1350c had gone up $1.10 in value to help offset any potential loss in the Sept 1325c due to SET. And with the .375 left in the Short 1325c last night, added to the $8.82 move needed to exceed the 1325 call price... we decided to wait out the game. In actuallity, we had up to 1326.50 before losing potential profit.... and 1332 before losing any capital.

Probably should have closed the 1350c in the morning... at it's high... but we were hoping for more of a run up on the NEWs. Needless to say... that didn't happen. So.. as the day passed... almost a full dollar bled out of the call... damn. GREED thing again got in the way.

As it turned out... for the ugly month with Volatility dropping, extremely bullish market, expiration week calm.... NOTE: this is the worst case scenario for the Diagonal Trade, we managed $1.70 return on $25,000 or 6.8% return for the three weeks.

I don't know about you.... but I'm sleeping very well trading these diagonals.

Just a side note: Our other Quadruple Oct/Dec diagonal we took off yesterday for a whopping 12% return in four weeks and our break evens were 1375 & 1210. Now that's comforting!

We entered a RUT double diagonal for Oct/Dec today. We're finding a much better return right now on the RUT. Got filled at MID today twice, both on the Put and Call side.... and in a very short time.

Updates to follow - enjoy

M~



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
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thanks guys

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Make your ToS screen look like this. The green line is your position at expiration under current conditions (SPX level and VIX level). The white line is your position today at this moment. Make sure you set the dates right in the upper right hand corner and the lower left hand corner.

EDIT: the example in the jpg is a triple diagonal I was playing with, you will get the idea though.
 
Quote from dagnyt:

In all my years as a CBOE market maker, I was never FORCED to bust a trade. We did it when we felt it was really an error.
Things may be different today.

Mark
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It is also possible that TOS ate it for me their very loyal customer:p
 
Murray:

Do you mind sharing the RUT strikes.

Thanks.

Quote from Sailing:

Final Sept/Oct Double Diagonal Update:

It's always a little unsettling waiting for SET when you still have a potential short among the midst... but the 1323 SET was appreciated and welcomed by all of us shorting the 1325c this morning.

Although our trading plan called for closing all shorts within 10pts of SET, the diagonal is a bit more forgiving than the credit spread. In fact, at the open, the Oct 1350c had gone up $1.10 in value to help offset any potential loss in the Sept 1325c due to SET. And with the .375 left in the Short 1325c last night, added to the $8.82 move needed to exceed the 1325 call price... we decided to wait out the game. In actuallity, we had up to 1326.50 before losing potential profit.... and 1332 before losing any capital.

Probably should have closed the 1350c in the morning... at it's high... but we were hoping for more of a run up on the NEWs. Needless to say... that didn't happen. So.. as the day passed... almost a full dollar bled out of the call... damn. GREED thing again got in the way.

As it turned out... for the ugly month with Volatility dropping, extremely bullish market, expiration week calm.... NOTE: this is the worst case scenario for the Diagonal Trade, we managed $1.70 return on $25,000 or 6.8% return for the three weeks.

I don't know about you.... but I'm sleeping very well trading these diagonals.

Just a side note: Our other Quadruple Oct/Dec diagonal we took off yesterday for a whopping 12% return in four weeks and our break evens were 1375 & 1210. Now that's comforting!

We entered a RUT double diagonal for Oct/Dec today. We're finding a much better return right now on the RUT. Got filled at MID today twice, both on the Put and Call side.... and in a very short time.

Updates to follow - enjoy

M~
More...
 
Sharing is Caring.... don't mind at all.... will put together a synopsis this weekend.

Also need to compose two powerpoints presentation for Monday, one open house presentation and a second draft of an operating agreement....

Still correcting papers here at school ... 9:52pm
Time for a real job.

M~




Quote from rdemyan:

Murray:

Do you mind sharing the RUT strikes.

Thanks.
More...
 
Coach,

Just look at your position... from a comparison point of view with respect to a similar credit spread position at those strikes....

Now tell me... isn't your diagonal less ulcer forming ?

PS Sent you some mail to help ease the pain!



Quote from optioncoach:

Since I am holding the 1340Ew/1360ES Call diagonal spread and ES is at 1332 we may see how adjustments work pretty soon :)
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Yes the stress is not as much but it is interesting to watch it now. I have been pricing butterflies and credit spread adjustments but not gonna take any action until the short strike is crossed.

Quote from Sailing:

Coach,

Just look at your position... from a comparison point of view with respect to a similar credit spread position at those strikes....

Now tell me... isn't your diagonal less ulcer forming ?

PS Sent you some mail to help ease the pain!
More...
 
Well Murray -- add me to the list. I officially entered my first put diagonal on 9/14 near the open. I had been watching your positions, entries, processes, potentials, and returns for a couple of months.

Initially, I was hesitant. I didn't have a full grasp of the concept of volty increasing the profit potential. I had run the "initial positions" through what happens at expiration, but this does not take into effect the potential value of the long puts.

I started small with the following position.

bto 1250 nov puts -- @ 7.8 spx ~1316 vix ~11
sto 1275 oct puts -- @6.1 spx ~1315 vix ~11

I legged in over a few minutes. I seem to get better fills that way and I have not experienced any significant whipsaw to date.

If the market runs higher, I will consider a double with shorts in the 1335-1355 range.

Thanks for sharing and teaching!

newbie
 
Here's my SPX October positions so far:

9/11/06 opened a 1350/1360 bearish call spread for $0.80. The market has come up quite a bit, however my rules don't call for an adjustment unless we touch 1340.

I'm hoping the SPX will hold and go no higher than its 52-week high of 1326.70.

At this point due to the drop in VIX, I'm not getting any decent premium at the strike points I'm interested in. Maybe it will come down a bit for some bullish put spreads. :D

Flint
 
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