SPX Credit Spread Trader

By the way I had a limit order for SXP OCT 1230/1240 put spread open all day and MMs did not bite. My window for getting a put spread in for Oct is shrinking fast like George Costanza coming out of the water....

Well 1240 is about as high as I feel comfortable so I doubt I will move the strikes higher for more premium at this late stage. if I cannot get something tomorrow on a down day, then NOV here I come!
 
Does anybody remember this post in april?

Quote from rallymode:

Here is the SPX weekly chart for the past 18 months.
spxweekly5co.jpg
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Great. Now that we have established rock solid credibility, time for another one.

spxda7.jpg



Everybody board the short train. Taleb and his buddies buying DOTM puts as we speak. riskarb loading up on DOTM exotic touches, first time in his career. Don't be left behind. :D
 
Limit order sitting for STO SPX OCT 1220/1230 put spread...

Either MMs greedy or I am being too greedy on my limits lol...

Rally: Now you gonna make me have to whip out a chart too...
 
Hi coach and other SPX Credit Spread Traders. I'm a full time trader who a little over a year ago started selling premium on SPX as an enhancement to my other trading strategies. Not surprisingly, it's been more successful than my core strategy in this environment.

When I started I was selling strangles on SPX two months out. While my range was wide enough to never need to close a position, the margin requirements were strangling (pun intended) my ability to trade the rest of the portfolio.

I tried switching to XSP but, like SPY, there's not enough credit to be had.

Then I started substituting Iron Condors for my strangles. Same short strikes, 20 pts further out on the longs. This has been working nicely.

A lot of you have been talking about your preference for diagonals over verticals. This has me curious. When you put on a DD (or even a one-sided diagonal), are you closing the position at expiration of the short strikes? Or is your intent to roll it into an Iron Condor (credit spread)? What are the advantages of the diagonal (usually a debit) over a vertical (always a credit)?

Perhaps my greeks are a bit rusty but I'm not seeing much -- if any -- theta improvement purchasing a month further out on my long strikes?
 
We each trade the diagonals a little differently so let me give you my take.

As a result of the skew I can get nice premium way OTM on the put side but not real happy with the call premiums and usually have to go closer to the money then I like.

I like using the diagonals for the call side because I can get a decent premium and I do not mind being a little closer than I like because the position actually makes money if the market moves to the short strike as expiration approaches. The further out option gives you more deltas to an extent so they help ease the pain as the market moves to your short strike.

the real bonus comes when the market is just below the short strike at expiration. With the vertical credit spread you make the full net credit. With the diagonal, you make the initial net credit, plus your long calls now have some nice premium which you can sell for more profit or roll into another position. Either way, the potential for a home run is greater.

The diagonals off more adjustment opportunities if the short strike is breached early.

So I still prefer put spreads on the down side but now prefer diagonals for the call side. The diagonals give you more choices in what to do with the position for ajdustments in my opinion. But the skew does not let you have a credit easily on the put side so I still stick with verticals there :). Dig back into the journal a bit and many of us have posted our diagonal trades with updates so you can see how they have worked.

Quote from MacThor:


A lot of you have been talking about your preference for diagonals over verticals. This has me curious. When you put on a DD (or even a one-sided diagonal), are you closing the position at expiration of the short strikes? Or is your intent to roll it into an Iron Condor (credit spread)? What are the advantages of the diagonal (usually a debit) over a vertical (always a credit)?

Perhaps my greeks are a bit rusty but I'm not seeing much -- if any -- theta improvement purchasing a month further out on my long strikes?
More...
 
Quote from MacThor:

the margin requirements were strangling (pun intended) my ability to trade the rest of the portfolio.
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Have a look at futures options with SPAN and/or become a member of a JBO for market maker haircut. Either of these will result in less onerous margin requirements and potentially better risk management opportunities. Both topics have been discussed extensively on this thread so have a browse/search.


A lot of you have been talking about your preference for diagonals over verticals. This has me curious. When you put on a DD (or even a one-sided diagonal), are you closing the position at expiration of the short strikes? Or is your intent to roll it into an Iron Condor (credit spread)? What are the advantages of the diagonal (usually a debit) over a vertical (always a credit)?
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IMO, a lot of profit potential in double diagonals is locked up in the roll opportunities. See here for a recent dialogue on the topic.

Others prefer to close at expiration of front month options.


Perhaps my greeks are a bit rusty but I'm not seeing much -- if any -- theta improvement purchasing a month further out on my long strikes?
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I believe Murray a.k.a Sailing has written a fair amount with respect to the greeks of a (double) diagonal position. Have a browse/search of this thread.

Essentially, by going long back month options you are increasing the VEGA sensitivity of the position.

You may gain an insight into the behavior of a diagonal by considering it as a vertical + a calendar.

This extra VEGA can come in handy when large moves occur.

The idea is to be earning some decay month to month whilst nothing happens but also be able to profit when more extreme moves occur.

e.g.

http://www.elitetrader.com/vb/showthread.php?s=&postid=1115645#post1115645

If you do rolling double diagonals it's possible to acheive a portfolio that allows you to be long THETA all the while yet also be net long contracts and/or VEGA for when the fit hits the shan.

You can either go about it by putting on double diagonal positions or you can take an inventory approach and add and build your inventory over a period of time and manage the portfolio by greeks.

The difference with verticals is that when disaster strikes, things can get ugly fast.

I suspect most of your questions on this topic can be answered by reading the last 1-200 pages in this thread.

Good luck!

MoMoney.
 
Mo,

I just love reading your posts... it's a highlight of the day.

Maybe we should accumulate your posts and publish them in.. "The Diary of Mo Momey's way to More Money"

Thank you for all your posts to date.... your time, commentary, and humor is appreciated.

M~


Quote from momoneythansens:
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By the way, on the haircut v. reg T margin issues, my Diagonal which has a theoretical risk of $270,000 has not had a daily haricut calculation above $160,000 the past week or so.

I cannot tell you the exact calculation but that is the figures from my sheet :D.
 
Coach,

We've been playing with the haircut issue and margin also. We actually bought more longs to offset the margin... which in turn allows you to invest more... which gives you more total positions.. which allows you to buy more risk protection... which allows you to increase your positions... etc.

The ability to use the haircut margin to offset the risk... really allows the diagonal to increase return/capital dramatically.

It's a whole different approach to investing.... we find ourselves calculating return on capital with little risk vs. return on margin with tremendous risk in a regular reg-T account.

M~


Quote from optioncoach:

By the way, on the haircut v. reg T margin issues, my Diagonal which has a theoretical risk of $270,000 has not had a daily haricut calculation above $160,000 the past week or so.

I cannot tell you the exact calculation but that is the figures from my sheet :D.
More...
 
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