SPX Credit Spread Trader

[rallymode]

Quote from optioncoach:

If Maverick comes calling for a margin call on an OTM call diagonal when the market drops sharply I will sue his ass lol... and win..

think about it

well, i was refering to a move against you, in your current case, 2 limit up days on the spoos. What say you now on the matter of risk reduction via haircut? And dont tell me you will hedge along the way

 

[El OchoCinco]

The risk is theoretical because since I have the long calls the spread will never get to $270K.

Also I do not need to hedge on the fly like I do with a vertical spread. I can easily roll the short into a reverse calendar or roll the short into a bear call spread in the later month or even into a butterfly and buy back the short and significantly reduce my risk even if I have to take a loss.

I say $270K theoretical cause in all calendars we know the long will still have value to offset the short to a small degree.

Moreover the short options are EWs which are European style so I will not get assigned and forced into a loss prematurely. Not true if the short is ES but a nice bonus nonetheless.

Even at those extremes the risk haircut will probably be less than $270 since the longs are in a later month.

Worst case scenarios I can use SPX options to adjust the position as well since there is cross-margining in the haircut. so if I am locked out of the futures options, I will look in the SPX market to do what I need to do as best as I can.

The haircut does not reduce risk overall, it just gives you more ways to reduce your risk with cross-margining and the fact that the entire max capital is not locked up in margin. Even with vertical spreads that are deep ITM, they are not necessarily at max value until expiration.

Quote from rallymode:

well, i was refering to a move against you, in your current case, 2 limit up days on the spoos. What say you now on the matter of risk reduction via haircut? And dont tell me you will hedge along the way

 

[spreadn00b]

Quick question, I'm papertrading the spreads still but would also like to begin papertrading the diagonals. One thing that is nice about the simple spreads is that I have the Option Trading Workbook (Excel freebie) that lets me see simple spreads (max PnL, greeks, graph, etc). I guess for diagonals or calendars in general, I would need something a little more sophisticated. I'm really not too interested in ToS, but not opposed to purchasing some software to help me visualize these diagonals. Any suggestions?

Thank you.

 

[Maverick74]

Quote from rallymode:

But your risk is still 270 large, no? If we have 2 limit down days on the spoos, maverick will be knocking on your door for the rest.

Mav"haircut"erick is here. Everyone can relax now. I don't knock, I just barge right in. LOL.

Haircuts actually do "reduce" risk as long as perpetual deltas are being created. Haircut is a derivative of time. Or let me put it this way, haircuts are actually a derivative of deltas. Therefore, as long as deltas are sustained or created, risk does not increase. It's very simple and can be solved mathematically. Everyone understand?

 

[rallymode]

Quote from Maverick74:

Mav"haircut"erick is here. Everyone can relax now. I don't knock, I just barge right in. LOL.

Haircuts actually do "reduce" risk as long as perpetual deltas are being created. Haircut is a derivative of time. Or let me put it this way, haircuts are actually a derivative of deltas. Therefore, as long as deltas are sustained or created, risk does not increase. It's very simple and can be solved mathematically. Everyone understand?

Mav,

thank you for the input, we all appreciate you insights. I hate to dwell on this but here is the issue i am having with this statement. How is risk reduced as you said? Now i am not talking about margin requirement reduction, i am talking about reducing the risk to your own capital at hand. Say you are short a DOTM veritcal, certainly you can buy gamma in any of the correlated instruments to hedge that particular position and reduce your "margin requirement" by cross-margining but new risk enters the equation now, no? That is your debit for the long gamma if using options, or whatever margin vtrader requires on futures or etfs . The way i see it, the risk to your vertical put position isnt reduced, it is transferred. That doesnt translate to a better returns for less risk as murray alluded to. Perhaps, i am misunderstanding his point.

Having a haircur margin, in and of itself cannot reduce the risk to your own capital. Sure you dont need as much cash in a prop account, but the risk is the same whether you are trading with haircuts or retail margins. Please feel free to correct me on this as i am no expert in cross-margining rules.

 

[Sailing]

Mav,

Sorry if I opened up a big door.... here... Probably not my place to expand conversation outside my expertise.

By the way.. we'll be knocking at your door this coming Thursday, 9am your time.

M~

Quote from rallymode:

Mav,

thank you for the input, we all appreciate you insights. I hate to dwell on this but here is the issue i am having with this statement. How is risk reduced as you said? Now i am not talking about margin requirement reduction, i am talking about reducing the risk to your own capital at hand. Say you are short a DOTM veritcal, certainly you can buy gamma in any of the correlated instruments to hedge that particular position and reduce your "margin requirement" by cross-margining but new risk enters the equation now, no? That is your debit for the long gamma if using options, or whatever margin vtrader requires on futures or etfs . The way i see it, the risk to your vertical put position isnt reduced, it is transferred. That doesnt translate to a better returns for less risk as murray alluded to. Perhaps, i am misunderstanding his point.

Having a haircur margin, in and of itself cannot reduce the risk to your own capital. Sure you dont need as much cash in a prop account, but the risk is the same whether you are trading with haircuts or retail margins. Please feel free to correct me on this as i am no expert in cross-margining rules.

 

[Maverick74]

Quote from rallymode:

Mav,

thank you for the input, we all appreciate you insights. I hate to dwell on this but here is the issue i am having with this statement. How is risk reduced as you said? Now i am not talking about margin requirement reduction, i am talking about reducing the risk to your own capital at hand. Say you are short a DOTM veritcal, certainly you can buy gamma in any of the correlated instruments to hedge that particular position and reduce your "margin requirement" by cross-margining but new risk enters the equation now, no? That is your debit for the long gamma if using options, or whatever margin vtrader requires on futures or etfs . The way i see it, the risk to your vertical put position isnt reduced, it is transferred. That doesnt translate to a better returns for less risk as murray alluded to. Perhaps, i am misunderstanding his point.

Having a haircur margin, in and of itself cannot reduce the risk to your own capital. Sure you dont need as much cash in a prop account, but the risk is the same whether you are trading with haircuts or retail margins. Please feel free to correct me on this as i am no expert in cross-margining rules.

Not true. Remember what I said, haircut is a derivative of time and delta. This means I can swap risk for time. No, it's not a free lunch. I am simply moving my risk forward in the future. Why would I do this? Usually it's because I want to swap deltas for curvature.

 

[Maverick74]

Quote from Sailing:

Mav,

Sorry if I opened up a big door.... here... Probably not my place to expand conversation outside my expertise.

By the way.. we'll be knocking at your door this coming Thursday, 9am your time.

M~

Murray, I'll leave the light on for ya.

 

[rallymode]

Quote from Maverick74:

Not true. Remember what I said, haircut is a derivative of time and delta. This means I can swap risk for time.

Interesting, i see you used the key word swap, so no reduction as you originally stated, but rather a transfer to the future as you just said. The same effect could be achieved in a retail account, you simply need more cash. No?

 

[rallymode]

Quote from Sailing:



By the way.. we'll be knocking at your door this coming Thursday, 9am your time.

M~

murray,

are you guys staying overnight? We have some nice joints in chicago.