SPX Credit Spread Trader

On the subject of butterfly conversions, I did one recently, so maybe the numbers from that will be educational for someone.

The details below are from memory as my journal is at the office.
3 weeks or so ago, I bought a SEP EW1335C/OCT 1350C diagonal for (0.75) debit. ES climbed rapidly afterward and I was concerned about the 1335 short. With the ES at about 1330, I was considering these two choices:

1) Close the spread for an additional (1.25) debit, making a total loss for the trade of (2.00)

2) BTC the 1335 short, STO 2 OCT1355C, BTO 1 OCT 1360C. This could be done for a total debit of (1.30) per butterfly. It still represents a total trade loss of (2.05) per original diagonal. The odds of the fly paying off are low. But the cost of this little lottery ticket was the same as simply closing the original trade, plus some extra commish (b/a spreads are included in the above prices).

Why not take the free butterfly?

And don't worry Mav...I only used half my home's mortgage on this trade ;-)
 
Quote from jeffm:

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.
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I guess it's true what they say, people believe what they want to believe. I never asked Phil to get emotional. I never asked Phil to hit the panic button. Are you a fiction writer on the side? LOL.

No, my beef with the trade is he is taking an enormous risk. Not in dollar terms, in risk terms! LOL. The guy is taking the same amount of risk for an ATM option as he would take for a DOTM option 100 pts OTM. And no, I'm sorry, I don't see the huge reward here. I question the merit of doubling down every month if you don't get the so-called credit you desire. That is not trading. That is called refusing to accept that you are wrong. No, I do not think Phil is necessarily being stubborn or ignorant of his risks. I am simply asking him to re-think his position. That is all.

And it does not matter if he is risking 100 million or $600 as you try to put it, the risk is relative to the reward here and the negative edge he is carrying on the trade.

I also am not sure if Phil had the ability to price his position theoretically at expiration given certain price and vol levels. So I jumped in to make sure he understood just how large the debit would be. I am not that worried about Phil, but since this thread is not just about Phil but rather it's being used as an educational platform, I felt it was justified to jump in here and point out to others that you simply can't keep rolling up forever. Phil himself even asked about the merits of such a strategy. So I jumped in and answered. Nobody is questioning or attacking Phil here, I think some here want to make sure they understand the "why" behind the trade. Carry on.
 
Quote from optioncoach:

Good point to bring up as I would hope no beginner here ever tries to follow an advanced strategy blindly. I made that speech several times and gave up on it but it never hurts to remind people.

so please read along but do not follow.
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It never hurts to keep remining people, but it's pointless. Newbies think they've discovered a gold mine and they do follow blindly.

Mark
 
Quote from rdemyan:

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.
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They're a poor directional strategy when traded within one sigma. Made worse when traded otm on the call side. I've only bought downside diagonals into a prediction of bear volatility, but prefer a same-strike spread // diagonal in that case. I was only making the point that diagonals are preferable to the penny/nickel verticals.
 
:) Mav always has my back :D.

It is a worthwhile discussion to have. I occasionally take excessive risks and it is part of my nature. Picking them apart and analyzing the trade is what the thread is for and I apreciate it, even if it is usually at my expense (in a good way). But I am here for knowledge like everyone else. So carry on and let the discussion flow!

-P

Quote from Maverick74:

I guess it's true what they say, people believe what they want to believe. I never asked Phil to get emotional. I never asked Phil to hit the panic button. Are you a fiction writer on the side? LOL.

No, my beef with the trade is he is taking an enormous risk. Not in dollar terms, in risk terms! LOL. The guy is taking the same amount of risk for an ATM option as he would take for a DOTM option 100 pts OTM. And no, I'm sorry, I don't see the huge reward here. I question the merit of doubling down every month if you don't get the so-called credit you desire. That is not trading. That is called refusing to accept that you are wrong. No, I do not think Phil is necessarily being stubborn or ignorant of his risks. I am simply asking him to re-think his position. That is all.

And it does not matter if he is risking 100 million or $600 as you try to put it, the risk is relative to the reward here and the negative edge he is carrying on the trade.

I also am not sure if Phil had the ability to price his position theoretically at expiration given certain price and vol levels. So I jumped in to make sure he understood just how large the debit would be. I am not that worried about Phil, but since this thread is not just about Phil but rather it's being used as an educational platform, I felt it was justified to jump in here and point out to others that you simply can't keep rolling up forever. Phil himself even asked about the merits of such a strategy. So I jumped in and answered. Nobody is questioning or attacking Phil here, I think some here want to make sure they understand the "why" behind the trade. Carry on.
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Rally:

Testing out the CTM side of the force.

I have an order for OCT 1360/1365 Call spreads since I do not see much more upside in the market and with 3 weeks to expiration. It is a relatively small position for me but still looks appealing.

I have a limit order for a return of 22% at $1.10 and if I get filled I will post it. Seems like a good opportunity for a CTM when we are at (IMHO) an oversold area due for a small pullback.
 
Quote from optioncoach:

Rally:

Testing out the CTM side of the force.

I have an order for OCT 1360/1365 Call spreads since I do not see much more upside in the market and with 3 weeks to expiration. It is a relatively small position for me but still looks appealing.

I have a limit order for a return of 22% at $1.10 and if I get filled I will post it. Seems like a good opportunity for a CTM when we are at (IMHO) an oversold area due for a small pullback.
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Never thought i'd see the day :D

Personally, i wouldnt be comfortable with the position you suggested but you are known for accepting higher risks.
 
Market seems to agree with me lol.... too bad i have not gotten filled yet...

I had an order to sell 60 1360/1365 OCT Call spreads at $1.10. With the recent intraday crash, the b/a fell pretty fast so no fill....
 
If we push and close below 1341 on the futures, I would expect us to reach for 1330 in the near future on a normal pullback.

With SPX I see a break of 1330 taking us possibly to somewhere near 1320..
 
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