SPX Credit Spread Trader

[dagnyt]

Quote from Heatheranderson:

Mark, Coach and others
Can we use the DD to hedge against our traditional Credit Spreads?. For every 10 contracts of selling Credit spreads or IC, buy 1 DD.

A lot depends on the strikes.

With credit spread, when strike is threatened, the risk of loss is severe.

With Diagonals (single or double), if strike is threatened, your loss is much smaller than with credit spread. But - and here's the real bonus - if expiration is near and the strike is threatened, the potential for a huge GAIN is pesent.

I don't consider your suggestion to be a hedge at all. A quick move to the strike turns both positions into losers. A hedge is a partial offset of risk and adding a DD to a bunch of credit spreads does not migitgate risk.

I'd suggest doing both - independently of each other - uintil such time as you see how much more money you are making with the diagonals.

Mark

 

[momoneythansens]

Quote from Heatheranderson:

Mark, Coach and others
Can we use the DD to hedge against our traditional Credit Spreads?. For every 10 contracts of selling Credit spreads or IC, buy 1 DD.

If by DD you mean double diagonal then I believe this suggestion has been proffered before.

One way of looking at it is: a diagonal is a credit spread, hedged by a calendar.

You could certainly look at hedging credit spreads with a smaller number of calendars.

MoMoney.

 

[El OchoCinco]

uh... nevermind... lol

Quote from Heatheranderson:

Coach
By DD i meant double diagonal. I didnot know that it was a symbol for some futures contract:eek:

:eek:

 

[momoneythansens]

Quote from momoneythansens:

I'm going long and taking out the gazillion stops at 1348. It might take 2 or perhaps 3 ES contracts to achieve this since everyone and his dog is short. As riskarb would say: feel the power!

Doh! Perhaps 1 more contract would have done it LOL. Good short now. See what the 3 O'Clock bots have to say about it.

 

[momoneythansens]

Quote from rallymode:

mo, you still scaling into puts?

Erm, not since FOMC and locked in some profits shortly after IIRC.

 

[El OchoCinco]

If we break lower tomorrow on the SPX I see 1325 as a next support target for the very short-term....

I may sell a few ITM 1325 SPX straddles with a tight stop loss tomorrow if we start moving lower..

Right now priced at about 28 which gives me an upside BE of 1353 which is manageble....

Equivalent on the ES is about 1330 or so and the 1330 ES straddles are selling for about the same..

 

[RichardRimes]

For thought and discussion:

While I have been selling calls into this rally I hadn't really seen an opportunity to sell puts. On 9/28 I decided to do a put debt spread ( BTO 20 1330/1320 spx puts..debt 2.50) in lieu of a credit spread feeling that it may be safer given how hard and fast the spx can drop. A few days later I decided to do a put credit spread creating basically an unbalenced ratioed condor on the put side. 10/2 STO 50 spx 1295/1280 puts cr $1.10. The net credit on the condor is $500 less commish.

I like this trade because like the diagonal if/when the spx moves toward your strike you have convergence gains, you have a wide profit zone (SPX closes between 1295-1320) and your over-all risk is reduced. Even if the SPX doesn't reach down to 1320 you can still close that debt spread to recoup some of the debt increasing your net gain. However unlike the diagonal there isn't the big margin requirement.

To my way of thinking when we have a stealth bull there is a risk of a severe tumble a la April then May/June. As coach has pointed out we seldom crash to the upside and this rally has shown that...giving us plenty of time to adjust or close (our calls). The downside of the SPX is more problematic. Rather than just as a hedge doing an unbalenced condor seems to be more pro active and gives you a chance for small profit if market does go up and hedges the downside if it goes down.

I may actually have made more had I done this the same day but didn't think of it until later. Its a bit safer than trying to leg into each side of my spread but the same general idea except that there is a ratio element to it. I would think for those that are leary of selling put spreads this might present a good compromise. Throwing in a chart which I think looks much like the 1st quarter.

 

[rallymode]

Quote from optioncoach:



I may sell a few ITM 1325 SPX straddles with a tight stop loss tomorrow if we start moving lower..

Right now priced at about 28 which gives me an upside BE of 1353 which is manageble....

Short CTM verticals, short delta straddles, could this be the new and improved coach phil? Fatherhood taking its toll?

 

[El OchoCinco]

Unfortunately I never got filled on those CTM verticals when SPX was near its highs.

Also had an order for NOV 1395/1400 Call spreads sufficiently off the mid (in my opinion) all day and no fill...

Quote from rallymode:

Short CTM verticals, short delta straddles, could this be the new and improved coach phil? Fatherhood taking its toll?

 

[Maverick74]

Quote from optioncoach:



I may sell a few ITM 1325 SPX straddles with a tight stop loss tomorrow if we start moving lower..

Right now priced at about 28 which gives me an upside BE of 1353 which is manageble....

Equivalent on the ES is about 1330 or so and the 1330 ES straddles are selling for about the same..

Naked straddles? WTF. Didn't this journal start off as in iron condor thread? :eek: :eek: :eek: