SPX Credit Spread Trader

[tplast]

Quote from dagnyt:

Because of negtve gamma, when you sold your futures, you were already short deltas. Selling just made you shorter. That's doubling the risk.

If you were really 'scalping negative gamma' you would have bought even more futures (to get delta neutral again), not sold the ones you bought earlier.

Short gamma scalping you buy rallies and sell dips.

That's not what you did.

Your 22 spreads may have been the driving force behind the futures purchase, but they had nothing to do with the sale. You just decided to get even shorter and arbitrarily assign the profits from the futures trade to your 22 spreads.

Mark

I totally get your point now, except for one thing:

I'm not scalping short gamma and I arbitrarily assigned the profits to the spreads. But how am I getting shorter as compared to not having done the scalp at all?

If I had not done the scalp (bought and then sold), my deltas would have been exactly the same at the point where I sold the futures. This drives home your point of this being an independent transaction, but I don't understand how it increases the risk as compared to not having done the scalp.

It is obvious that no matter how you slice it, I'm better after booking the profits from the scalp. But also I'm fooling myself of thinking that my short deltas are offsetting the loses from them. In reality, any loses from the scalps will come out from profits from the scalps and the spreads themselves will behave exactly as if the scalps never happened.

 

[riskarb]

Quote from segv:

Are you talking about overhedging your deltas when short gamma?

-segv

Referring to gap-risk against the spot hedge. Often the gains from curvature on the option position don't adequately compensate for the loss in spot, regardless of the seemingly neutral hedge ratio. Large intraday, small EOD stat vols. The inability to discretely replicate the gamma curvature.

Of course, the flip-side can be deadly for long gamma trading as well.

 

[segv]

Quote from riskarb:

Referring to gap-risk against the spot hedge.

Oh, I understand you now. You are quite right.

-segv

 

[Heatheranderson]

What would be the haircut margin for the below position?.

Short 1000 SPY (shorted at 133)
Long 10 OCT 135 Calls

Appreciate if some can throw some light.thanks

 

[blk]

Hi Heather,

Short stock + long call = Long Put (at 135 strike at your case). Synthetics.

Although I'm no haircut expert, you might as well just buy 10 135 puts (after closing your existing positions) and not worry about any margin in this case.

Just my 2cents.

Cheers.

Quote from Heatheranderson:

What would be the haircut margin for the below position?.

Short 1000 SPY (shorted at 133)
Long 10 OCT 135 Calls

Appreciate if some can throw some light.thanks

 

[scoobie27]

Quote from Heatheranderson:

What would be the haircut margin for the below position?.

Short 1000 SPY (shorted at 133)
Long 10 OCT 135 Calls

Appreciate if some can throw some light.thanks

Hi Heather,

Would answer your question if I was familiar with haircuts but unfortunately Im not. Someone with a prop account would be able to help but the best guy to answer this would be Mav. Maybe PM him if he hasn't come accross this thread?

Cheers

 

[El OchoCinco]

Not sure if you would even have a haircut. The maximum loss on this position is $2,000 plus the cost of the long calls. So you would most likely have to put up that amount as margin. It is a hedged position.

Quote from Heatheranderson:

What would be the haircut margin for the below position?.

Short 1000 SPY (shorted at 133)
Long 10 OCT 135 Calls

Appreciate if some can throw some light.thanks

 

[Heatheranderson]

Coach and others,
My idea is scalping without worrying about greeks.I intend to purchase front month calls and keep shorting SPY whenever appropriate. If i do this in retail account i have to put up 50% stock cost as well as the cost of long calls which will reduce the ROI. But with just $2000 and cost of long calls, the ROI would be lot more.
what do you think?.

 

[El OchoCinco]

Well I was saying that that is your max risk, a good retail broker should also count it that way and not treat it as a short stock margin and a long call. You might not need haircut to do that. if you were short stock and bought a call, your Reg T margin should drop. Ask your broker (ToS or OX) to see.

Quote from Heatheranderson:

Coach and others,
My idea is scalping without worrying about greeks.I intend to purchase front month calls and keep shorting SPY whenever appropriate. If i do this in retail account i have to put up 50% stock cost as well as the cost of long calls which will reduce the ROI. But with just $2000 and cost of long calls, the ROI would be lot more.
what do you think?.

 

[blk]

Quote from Heatheranderson:

Coach and others,
My idea is scalping without worrying about greeks.I intend to purchase front month calls and keep shorting SPY whenever appropriate. If i do this in retail account i have to put up 50% stock cost as well as the cost of long calls which will reduce the ROI. But with just $2000 and cost of long calls, the ROI would be lot more.
what do you think?.

Heather,

I'm trying to understand your situation. Are you trying to:
1. Be bearish on SPY (and hence the short SPY stock) and trying to hedge this with the long call?

(OR)

2. Be bullish on SPY overall (and hence the long SPY call) and trying to short SPY stock when you think it will drop, to hedge the long call?

If its 1, then why dont you just buy the put when you think SPY will drop and then sell it when you think the drop is over? In this case, you wont have any margin issues.

If its 2, just sell the SPY call when you get bearish and buy it back when you think the drop is over. Again, no margin issues.

Someone, please correct me if I'm way off here.