SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Looks like I nailed the bottom... 
. I also scalped and went long ES for a point off the bottom.
. I also scalped and went long ES for a point off the bottom.Quote from optioncoach:
ES futures are forming a bottom pattern at 1327 right now
That's a long OCT/NOV calendar + a short NOV/DEC calendar.
The long calendar is long VEGA.
The short calendar is short VEGA.
Which one wins in the VEGA stakes? I'm guessing the short calendar.
Ideal is for OCT expiration at 1360 with a volatility increase. Then close the long calendar. Followed by NOV expiration anywhere but 1360 and a volatility decrease for the short calendar component.
Are you sure you want to be short VEGA in the OCT to NOV period?
If you don't close the long calendar at OCT expiration you will be long DELTA, long GAMMA, short THETA and probably still short VEGA during the OCT to NOV period.
If we haven't reached 1360 by OCT expiration, then your position will be quite badly hurt by any drop and volatility increase in NOV should one materialize i.e. it's a very bullish position.
I haven't modeled the position so I apologize if my cursory analysis is incorrect.
I understand inter-month futures butterfly spreads but this is not the same thing. Frankly, the position is nuts IMO but I'm sure you'll make it work
Good luck.
MoMoney.
Quote from momoneythansens:
Frankly, the position is nuts IMO but I'm sure you'll make it work
Mo, phill has a fetish for entagled position structures and is known for flip flopping his opinion on the underlying every 2-3 weeks. Should be apparent from all his ES/EW long vega/short vega plays.
No offense Phil though i am quite surprised you even bother with these things at your level
Well, I just glance at my bottom line and it makes all these things quite worth it
I put on the EW/EW calendars because I expected at some point a pullback off of the highs and an IV increase. If we actually fall hard, then I get to make even more money.
The call diagonals play off of collecting net credits with the potential for even greater profits since I am selecting strikes at a resistance point where I think the market might move to, but not necessarily break through.
So both positions actually play off each other quite nicely.
As for flip flopping my position on the underlying, my positions are mainly neutral so I do not really take any strong position on the market except to outline where the market is likely not to go. I may be premature to pat myself on the back but I chose the 1340 strike as a resistance point for the diagonal and we bounced off of it nicely today and yesterday. My previousd diagonal also used strikes which were barely touched as expiration approaches. Not trying to toot my own horn, but I think I have been consistent in my market calls and have not flip-flopped.
Now as for the cross months butterfly for MO:
Using as equivalent SPX options as I can find which would be the 1350 strikes here are the Greeks on the respective positions
OCT 1350 Call D:.22 TH:-.21 V:1.08
NOV 1350 Call D:.35 TH:-.23 V:1.91
DEC 1350 Call D:.41 TH:-.23 V:2.47
So assuming a short -1 +2 -1 cross month fly, the combined position would have the following (assuming math is correct):
Position Delta = + .07
Position Theta = - .02
Position Vega = +.27
So initially the Greeks are pretty flat.
THETA: the front month calls will eventually have the largest theta and even more so if the call moves to ATM. However at the inception the position has no real time decay as of yet. What I would expect is that as OCT expiration approaches, front month theta will increase if the market moves to 1360 as expiration approaches. If not the OCT calls will still decay faster than the NOV, and of course the NOV will expire faster than the DEC. Theta is an ally up until OCT expiration and after that could hurt but at a cost of $0, I should not really feel major effects.
DELTA. As the market moves higher the deltas in each will increase but should offset mostly. The net delta of the position until OCT expiration will still be net positive from my mental modelling. If the market crashes, I am not concerned with the deltas because my goal is to open for even/no cost. So I will not see a net debit shrink away to nothing.
VEGA: As the market moves highier (this is an OTM FLY) volatility will stay low or decrease. This could hurt the position but having the market move to the srtike helps so they could offset. At these low vol levels vega changes will really be minimal.
So bottom line, many of the greeks offset each other for the most part. The goal is to have the OCT expire worthless and then be left with a position which will close for a net credit for a nice profit. In the prop account, there is no significant margin up through NOV expiration which is the latest I would hold.
real danger is a strong move away from strike by OCT expiration.
Thoughts?
I put on the EW/EW calendars because I expected at some point a pullback off of the highs and an IV increase. If we actually fall hard, then I get to make even more money.
The call diagonals play off of collecting net credits with the potential for even greater profits since I am selecting strikes at a resistance point where I think the market might move to, but not necessarily break through.
So both positions actually play off each other quite nicely.
As for flip flopping my position on the underlying, my positions are mainly neutral so I do not really take any strong position on the market except to outline where the market is likely not to go. I may be premature to pat myself on the back but I chose the 1340 strike as a resistance point for the diagonal and we bounced off of it nicely today and yesterday. My previousd diagonal also used strikes which were barely touched as expiration approaches. Not trying to toot my own horn, but I think I have been consistent in my market calls and have not flip-flopped.
Now as for the cross months butterfly for MO:
Using as equivalent SPX options as I can find which would be the 1350 strikes here are the Greeks on the respective positions
OCT 1350 Call D:.22 TH:-.21 V:1.08
NOV 1350 Call D:.35 TH:-.23 V:1.91
DEC 1350 Call D:.41 TH:-.23 V:2.47
So assuming a short -1 +2 -1 cross month fly, the combined position would have the following (assuming math is correct):
Position Delta = + .07
Position Theta = - .02
Position Vega = +.27
So initially the Greeks are pretty flat.
THETA: the front month calls will eventually have the largest theta and even more so if the call moves to ATM. However at the inception the position has no real time decay as of yet. What I would expect is that as OCT expiration approaches, front month theta will increase if the market moves to 1360 as expiration approaches. If not the OCT calls will still decay faster than the NOV, and of course the NOV will expire faster than the DEC. Theta is an ally up until OCT expiration and after that could hurt but at a cost of $0, I should not really feel major effects.
DELTA. As the market moves higher the deltas in each will increase but should offset mostly. The net delta of the position until OCT expiration will still be net positive from my mental modelling. If the market crashes, I am not concerned with the deltas because my goal is to open for even/no cost. So I will not see a net debit shrink away to nothing.
VEGA: As the market moves highier (this is an OTM FLY) volatility will stay low or decrease. This could hurt the position but having the market move to the srtike helps so they could offset. At these low vol levels vega changes will really be minimal.
So bottom line, many of the greeks offset each other for the most part. The goal is to have the OCT expire worthless and then be left with a position which will close for a net credit for a nice profit. In the prop account, there is no significant margin up through NOV expiration which is the latest I would hold.
real danger is a strong move away from strike by OCT expiration.
Thoughts?
Quote from rallymode:
Mo, phill has a fetish for entagled position structures and is known for flip flopping his opinion on the underlying every 2-3 weeks. Should be apparent from all his ES/EW long vega/short vega plays.
No offense Phil though i am quite surprised you even bother with these things at your level
I have not finished testing this either but if we have not reached 1360 by Oct expiration my assumption that how my position is hurt badly by a drop in price and volatility increase is that the remaining DEC calls will retain enough value while the NOV ones will shrink so that I would only be able to close the 2xNOV/1xDEC for a net debit and thus a loss.
That is the part I am still studying, what to do or what adjustments exist in a strong move away from the FLY.
That is the part I am still studying, what to do or what adjustments exist in a strong move away from the FLY.
ahh phil, that long winded post wasnt necessary. I hope i didnt put you on the defense as i wasnt totally serious in my post. Perhaps, the smiley face didnt show that properly. I am sure your bottom line justifies doing all of it.
And since you asked about comments, let me polute your thread some more.
My point was that, and its not so much of a point than it is a pet peeve lol, but you are throwing guesses on would happen in both months precisely. You are long vega, long theta in your front month position(left part of your fly), so you want the market to sit still or drift to your strike. Then all of a sudden the position reverses your forecast all at expiration hence the flip-flop term used. You become long gamma short vega, and need the market to make a big move, preferably to the upside. See what i am getting at? It requires too many things to happen exactly as you need them to so that the play can have some kind of "expectancy". I am sure with your experience in adjustments, you can squeeze some $$ out of the position somewhere in there but is all the effort worth it. Frankly, i am more likely to find some entertainment value in these plays vs any serious financial gains. Just my 2 cents.
One way of seeing it is that after OCT expiration, you'll be left with a short calendar plus a long call.
You do good with the short calendar when it moves away from the strike or vol decreases. Normally the goal is for the underlying to finish away from the strike to keep most of the credit received. But since you didn't receive any credit there is only risk but no reward.
Your long call offsets the loses from the calendar near or above 1360.