SPX Credit Spread Trader

OC, This subject interests me profoundly(IOW..I gotta get a life coz I got nothing better to do on a Sunday than bang out XL simulations) . I relize you trade ES but a real life simulation of SPy would illustrate the point I am trying to make.

SPY at $135.

1st trade S 10 SPY Oct 136 call / B 10 SPY 140C
2 sigma move at 10% IV
Price range 128.60 to 141.40
Pnl range $815 @ $128.6 -3177 @$141.40

10 days from initial trade SPY goes to 138 which is 50% into the vertical of 136/140

To fly off this bleed you'd need to
B 10 135Cat $3.4
S 10 136C @$2.45
B 10 137C @ 1.65
S 10 140C @.25
This would give you a 10 lot 135/136/137 fly

Advance to Oct expiration, here is the underlying/pnl matrix keeping iv constant.

128.6 -1478.80
129.4 -1478.80
130.2 -1478.80
131 -1478.80
131.8 -1478.80
132.6 -1478.80
133.4 -1478.80
134.2 -1478.80
135 -1478.80
135.8 -678.80
136.6 -1078.80
137.4 -1478.80
138.2 -1478.80
139 -1478.80
139.8 -1478.80
140.6 -1478.80
141.4 -1478.80

This is what IV, Maverick and I (the former two very knowlegable) option traders are trying to point out to you .Hope this helps. Good luck on your position... NOw gotta go to resume my search for a life...lol
 
Quote from optioncoach:


Current position:

- 270 OCT ES 1355 Calls
+ 270 OCT EW 1375 Calls

Net Credit = 2.90 or $39,150
More...

From your own figures I can open the same diagonal for net credit of 8.50 - 4.35 = 4.15

You own it for 2.90 credit.

Next time you can just give me the 1.25 :D
 
Mushin:

I might change it only slightly but my long call is in a later expiration period, it is not a vertical credit spread but a diagonal.

GUYS:

I think the discussion is great but you took a tangent and ran with it. I mentioned the FLY conversion as 1 of a few possible ajdustments. Everyone seemed to focus in on that specific one. I also said, it would be compared to closing the spread outright and whichever was cheaper would be the choice.

I think I made it clear that if the FLY conversion was more expensive than closing the spread outright I would not do it. You guys seem to have interpreted it as I would simply do the FLY conversion as soon as the short call went ITM and turn the position into a profit. I think I avoided such a blanket statement. :) But good discussion nonetheless.
 
uh..... you would not be able to do so in the same situation lol. You forgot I bought back the other spread for a net debit...

8.00 - 6.75 = 1.25..... and there is your difference :D

Quote from momoneythansens:

From your own figures I can open the same diagonal for net credit of 8.50 - 4.35 = 4.15

You own it for 2.90 credit.

Next time you can just give me the 1.25 :D
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I have to admit, this is a fun discussion Coach, but please, for your follower's sake, give them an idea of how big that check is your writing. When you slap on this debit spread to get out of the position, you are writing a very big check with your signature on the bottom. We are talking about a serious amount of money here. Even if you close the spread we are talking about a serious amount of money. I think you are playing this too casual when you simply say you will slap on a fly or close it out. You are talking about taking a 100k plus hit!!!!!! You need to emphasize that part of it. You are acting like it's a day at the beach here. LOL. :)
 
Quote from optioncoach:

uh..... you would not be able to do so in the same situation lol. You forgot I bought back the other spread for a net debit...

8.00 - 6.75 = 1.25..... and there is your difference :D
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That was my indirect way of pointing out where the flaw in the perpetual rolling up and out strategy was. You've exchanged the $1.25 for probability (up) and time (out)

I see now that you and others have already flogged this topic. My apologies!
 
With all due respect; the fly is a silly idea. 5-wide? These adjustments are "pay me [more] later" strategies, which in reality are weak martingales.

I am short as well, so more power to Coach, but... if in doubt, close it out.
 
Risk:

I remember a post from a while back where you mentioned that we all should be trading time flies among some other strategies. While the diagonals aren't flies, they do have a time component. I haven't seen much input from you on our diagonal discussions.

Appreciate any info you care to share.

Quote from riskarb:

With all due respect; the fly is a silly idea. 5-wide? These adjustments are "pay me [more] later" strategies, which in reality are weak martingales.

I am short as well, so more power to Coach, but... if in doubt, close it out.
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Wellwe have to be realistic here for minute in between all this fun:

1. The monetary amounts are right there in the open if someone cares. I never hid them. Do I really owe people my full personal details when it is obvious to begin with :).

2. I do not have any followers. I doubt anyone here has ever followed my trades and I made enough warnings about not doing that to sleep well at night. I am not managing anyone's money here. I am tired of having to print disclaimers and remind people to not blindly follow someone else's trades without their own due diligence.

3. I believe I have been quite remiss in being too casual with divulging my personal portfolio amounts. Mav knows how much is in my prop account, and I made it clear that those funds were a portion of my portfolio I moved over to the prop (not putting eggs all in one basket idea). But I doubt that my generiosity means I should give away personal financial info to anyone here and I will change that in the future and seriously curtail my postings from here forward. I do not mind euqally showing my losses as well as my profits and I have in the past. But there has to be a line somewhere.

4. If I seem casual well I learned a long time ago that a loss is the same loss whether I am crying and shaking or relaxed and calm. I tend to think better when I am relaxed and calm. If the position causes a drawdown, I will not blow up my account, I will no wipe out capital I needed to live, I will not put my family in financial dire straits and I will not breakdown. If anyone is trading with money where a loss would cause one of the above, stop now and wait until you have discretionary funds. I am not trying to lose money, I am taking a position based on my expectations and analysis and fully aware enough to take the responsibility if I am really wrong. I have my predetermined cut-off in my head and will act accordingly. If I take the drawdown I have the confidence I can still make money over the long haul which is my goal.

5. My credit spread profits are in a separate account and therefore I am not giving them back lol. My funds are split with different accounts and partners so they are not..... fungible lol.

So there you have it folks. That is me. I have stress and I am monitoring the position. We will see what happens...


Quote from Maverick74:

I have to admit, this is a fun discussion Coach, but please, for your follower's sake, give them an idea of how big that check is your writing. When you slap on this debit spread to get out of the position, you are writing a very big check with your signature on the bottom. We are talking about a serious amount of money here. Even if you close the spread we are talking about a serious amount of money. I think you are playing this too casual when you simply say you will slap on a fly or close it out. You are talking about taking a 100k plus hit!!!!!! You need to emphasize that part of it. You are acting like it's a day at the beach here. LOL. :)
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I strongly disagree with this. From day 1, Phil has traded large size. This entails large rewards and much larger risks in the case of credit spreads. He has not beat his chest and crowed about being a big swinging dick when he made money. He has not cried or whined when he lost money.

You are basically asking someone who trades at your business to start getting emotional because he has a large amount of money at risk. That is not good advise, imo. Question the merits of a trade for its own sake. Question how much risk should be taken on this type of trade. But don't start screaming for him to hit the panic button.

Any of Phil's "followers" who are making similar trades are no doubt using their own common sense regarding their position sizing. And if they are not using proper risk management, they have only themselves to blame for any outsized losses.

Lets rephrase what you wrote for a "follower" trading a 1 contract blind sheep trade:
"You are talking about taking a $650 plus hit!!!!!"
Sounds extra scary when you see it like that :D

Lets just stick to whether or not its a good trade on a per contract basis. Phil can worry about his own money management.

Quote from Maverick74:

You are talking about taking a 100k plus hit!!!!!! You need to emphasize that part of it. You are acting like it's a day at the beach here. LOL. :)
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