SPX Credit Spread Trader

Hello Coach, Murray, Mo and other traders,

I've been trading far OTM SPX credit spreads since Aug '05. Have been profitable (with 2 bad months Oct 05, May 06 - but got away with a minimal hit). I trade credit spreads and if conditions allow, I complete the iron condor. Been a regular reader of this thread and have learnt quite a bit. Thanks to you all.

Been fascinated by the DDs (thanks to Murray) - especially the part where we dont have to worry about black swans. I've paper traded them. Have also tried them on SPX Weeklies (short) Vs the regular monthlies (long).

But somehow, I havent been able to pull the trigger on the SPX (or other) DD's. I'm quite comfortable trading verticals though. Any ideas to overcome this would be greatly appreciated.

Also, Murray, a few months ago, you were discussing ratioed diagonals on the call side (to compensate for the drop in vega when the index rises). Sorry, if I might have missed what happened to that idea. Are you still pursuing it?

Thanks for the help.
 
Quote from Sailing:

Coach,

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

M~
More...

If kept within the realms of good reason.

Perpetually using haircut to increase postion size is just asking for an account blowup if/when something happens like the skew getting all out of whack. Suddenly the over-leveraged account faces a margin call and takes a huge loss on what was otherwise a very limited risk position.

Just ask that Hunter guy from Amarynth. The guy was trading calendar spreads and one leg got out of whack on him. Under normal circumstances, the account could've handled the margin call, but they were over-leveraged.
 
Speaking of over leverage. I'm reading "When genius failed", the story of LTCM.

These guys were using repo loans to build their positions in a way that resulted in 0% margin. Their first trade was a 2 billion dollars bet on bond spreads using $0 of their cash.
 
I think the point Sailing is making is:

"The ability to use the haircut margin to offset the risk"

I do not use the haircut to increase my posiiton size, I use it to decrease my capital required and reduce it when I hedge. For example I have a $270k position that has required only anywhere between $75k and $160K.

I can use SPX, ES, EW, SPY and even OEX/XEO to hedge :)

Quote from Cache Landing:

If kept within the realms of good reason.

Perpetually using haircut to increase postion size is just asking for an account blowup if/when something happens like the skew getting all out of whack. Suddenly the over-leveraged account faces a margin call and takes a huge loss on what was otherwise a very limited risk position.

Just ask that Hunter guy from Amarynth. The guy was trading calendar spreads and one leg got out of whack on him. Under normal circumstances, the account could've handled the margin call, but they were over-leveraged.
More...
 
I read it twice already and vow to read it every other year or so. Keeps me humble and focused on risk...

Quote from tplast:

Speaking of over leverage. I'm reading "When genius failed", the story of LTCM.

These guys were using repo loans to build their positions in a way that resulted in 0% margin. Their first trade was a 2 billion dollars bet on bond spreads using $0 of their cash.
More...
 
Quote from tplast:

Speaking of over leverage. I'm reading "When genius failed", the story of LTCM.

These guys were using repo loans to build their positions in a way that resulted in 0% margin. Their first trade was a 2 billion dollars bet on bond spreads using $0 of their cash.
More...

Yep. Point is that no need for margin today, doesn't mean no need for margin tomorrow. If that were the case there wouldn't be stupid things like margin calls, and certain accoutns wouldn't have to be designated as cash accounts.
 
Quote from optioncoach:

I think the point Sailing is making is:

"The ability to use the haircut margin to offset the risk"

I do not use the haircut to increase my posiiton size, I use it to decrease my capital required and reduce it when I hedge. For example I have a $270k position that has required only anywhere between $75k and $160K.

I can use SPX, ES, EW, SPY and even OEX/XEO to hedge :)
More...

Yeah, my point was that there are situations that can cause a realization of the actual max risk. I understand that haircut opens a whole new world of hedging opportunities, and I have considered opening a seperate prop account myself. But my general philosophy is that if it can't be done in a cash account, it really needs to be viewed with an extra dose of skepticism and reality.

That's why that book is called

"When GENIUS Failed"

rather than

"When Idiots Who Thought They Could Beat The System Finally Got What Was Coming To Them"

JMHO
 
"Inventing Money" also covered LTCM. I thought it was good as well.

Quote from optioncoach:

I read it twice already and vow to read it every other year or so. Keeps me humble and focused on risk...
More...
 
Quote from Sailing:

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

Thanks Murray but I just make stuff up as I go along :eek: I'm sure many folks here are extremely grateful for your detailed treatment and documentation of your trading strategies, thought processes and positions over the months!
 
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