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SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
We've done a ton of analysis... the lastest using 'haircut magin' on the position. After studying this now for a week... day and night, it just isn't fair that Retail Margin traders have to compete with HairCut Margin traders..... it's like day and night. What's even more astounding... is you think in terms of Risk:Capital, rather than Risk:Reward
As far as the Diagonals.... we're playing most of your money on the RUT instead of the SPX. The RUT appears to be rotating into large caps... creating some nice volatility. The RUT Double Diagonal is up twice as profitable as the SPX, currently.
We also TENT pole the position after it make a move toward one end of the diagonal. We like to wait for an opportunity of low volatility to enter. This gives us a real nice bonus if the market remains stagnant. The TENT pole is a Put Calendar no matter which way the market moves and it generally slightly OTM.
We've also 'scalped' the TENT pole a few times... on either as a whole, or just the short position... just a personal preference.
Hope you're well rested..... this market's in a hurry somewhere! Hard to keep up.
M~
As far as the Diagonals.... we're playing most of your money on the RUT instead of the SPX. The RUT appears to be rotating into large caps... creating some nice volatility. The RUT Double Diagonal is up twice as profitable as the SPX, currently.
We also TENT pole the position after it make a move toward one end of the diagonal. We like to wait for an opportunity of low volatility to enter. This gives us a real nice bonus if the market remains stagnant. The TENT pole is a Put Calendar no matter which way the market moves and it generally slightly OTM.
We've also 'scalped' the TENT pole a few times... on either as a whole, or just the short position... just a personal preference.
Hope you're well rested..... this market's in a hurry somewhere! Hard to keep up.
M~
Quote from yip1997:
Murray,
Just came back from a long vacation, and there are too many pages to catch up with.
I knew you and a member in your club are experiencing wide DD. Any discovery?
Tim,
Good Question:
Not knowing which way the market will move.... is why. The original Double Diagonal has a big 'dip' in the middle, approximately halfway between the two near month short strikes. The severity of the dip is determined by the width of the short strikes and VEGA.
As the position moves one way or the other, it's nice to 'bring up' the middle. This is accomplished by purchasing a Put Calendar (or diagonal) slightly out of the money. We use half the number of original contracts for the calendar.
We prefer the Put Calendar over the Call diagonal because it has a slightly smaller cost (because of the put skew) and because it has a tendency to respond to VEGA more quickly.
By adding the TENT pole (put calendar) you've now increased your profit window (break evens slightly) and given yourself an opportunity to profit nicely in the middle of the range. This is especially nice when the market moves up (over sold, puts are inexpensive, volatility is low) and pulls back for a couple days. It even creates a great scalping opportuinty within the time frame of expiration.
This certainly is not the 'holygrail' of Put Diagonal trading, but throw in a little haircut margin, a few tent poles... and relax. It's much different than trading spreads.
M~
Good Question:
Not knowing which way the market will move.... is why. The original Double Diagonal has a big 'dip' in the middle, approximately halfway between the two near month short strikes. The severity of the dip is determined by the width of the short strikes and VEGA.
As the position moves one way or the other, it's nice to 'bring up' the middle. This is accomplished by purchasing a Put Calendar (or diagonal) slightly out of the money. We use half the number of original contracts for the calendar.
We prefer the Put Calendar over the Call diagonal because it has a slightly smaller cost (because of the put skew) and because it has a tendency to respond to VEGA more quickly.
By adding the TENT pole (put calendar) you've now increased your profit window (break evens slightly) and given yourself an opportunity to profit nicely in the middle of the range. This is especially nice when the market moves up (over sold, puts are inexpensive, volatility is low) and pulls back for a couple days. It even creates a great scalping opportuinty within the time frame of expiration.
This certainly is not the 'holygrail' of Put Diagonal trading, but throw in a little haircut margin, a few tent poles... and relax. It's much different than trading spreads.
M~
Quote from dqtmg2:
Murray,
I thought you entered the double diagonal during low volatility, so why would you add the "tent" poles later? Why not put them in when opening the DD? Are you also looking for a specific underlying price (near strike?) for the tent poles in addition to low volatility?
Tim
HairCut Margin Presentation
Many of our club members trade covered calls... why? I don't know... I guess some habit are hard to break.
What we did last Monday in class was present a powerpoint presentation on using HairCut margin on Covered Calls. We then extended the position by purchasing puts (married puts).
Most of the covered calls writers were blown away. In fact, many of them stayed after for hours making sure the numbers were correct.
Since this forum doesn't allow powerpoints to be uploaded, just send me an email requesting the presentation... I'll forward it on to you.
SailingBme@yahoo.com
Enjoy,
M~
Many of our club members trade covered calls... why? I don't know... I guess some habit are hard to break.
What we did last Monday in class was present a powerpoint presentation on using HairCut margin on Covered Calls. We then extended the position by purchasing puts (married puts).
Most of the covered calls writers were blown away. In fact, many of them stayed after for hours making sure the numbers were correct.
Since this forum doesn't allow powerpoints to be uploaded, just send me an email requesting the presentation... I'll forward it on to you.
SailingBme@yahoo.com
Enjoy,
M~
Well, I was forced out of my Oct 1360/1370 bear call (what the hell is this market doing).
Still haven't put on an adjusted position as the market is continuing to go up. Looking at 1370/1380 or 1370/1385 but I don't have a clue where the short term top is. SPX is now a full 2 points higher than when I got out of the 1360/1370.
Still haven't put on an adjusted position as the market is continuing to go up. Looking at 1370/1380 or 1370/1385 but I don't have a clue where the short term top is. SPX is now a full 2 points higher than when I got out of the 1360/1370.
Knowing myself, I knew this would happen and I probably forced the situation a bit (and in a paper trading account no less to eliminate emotions!). Feeling bearish when the SPY was at 132.00, I opened a put debit spread (DEC 06 130P/126P) for .90 knowing that I might do something like this in a real account to help when the market went down (a hedge against my bullish positions, which are all quite green). Of course, I'm less concerned with taking profits in my paper trading and much more concerned about learning the risk management ropes.
In my plan, I said that I would consider adjustments around 134.00 and here we are! My plan says that I should consider
a) Buying back the short put if my bearish feeling is raised (and it is).
b) Selling a call credit spread if my bearish feeling is raised.
c) Exiting the position at a loss if my feeling is bullish.
I'm going between a) and b), but b) seems like it locks in a bit of a loss while a) seems riskier since I'm basically long an OTM put. c) does not fit my "feeling" at the present moment and I still want it to hedge bullish positions that are on.
Not that there is really a correct answer I understand, but is this clear thinking or am I completely missing the boat here? Is it too early to adjust? The spread is now trading @ 0.6, maybe it needs more time?
I appreciate any help.
Thank you.
In my plan, I said that I would consider adjustments around 134.00 and here we are! My plan says that I should consider
a) Buying back the short put if my bearish feeling is raised (and it is).
b) Selling a call credit spread if my bearish feeling is raised.
c) Exiting the position at a loss if my feeling is bullish.
I'm going between a) and b), but b) seems like it locks in a bit of a loss while a) seems riskier since I'm basically long an OTM put. c) does not fit my "feeling" at the present moment and I still want it to hedge bullish positions that are on.
Not that there is really a correct answer I understand, but is this clear thinking or am I completely missing the boat here? Is it too early to adjust? The spread is now trading @ 0.6, maybe it needs more time?
I appreciate any help.
Thank you.
Quote from Sailing:
We've done a ton of analysis... the lastest using 'haircut magin' on the position. After studying this now for a week... day and night, it just isn't fair that Retail Margin traders have to compete with HairCut Margin traders..... it's like day and night. What's even more astounding... is you think in terms of Risk:Capital, rather than Risk:Reward
As far as the Diagonals.... we're playing most of your money on the RUT instead of the SPX. The RUT appears to be rotating into large caps... creating some nice volatility. The RUT Double Diagonal is up twice as profitable as the SPX, currently.
We also TENT pole the position after it make a move toward one end of the diagonal. We like to wait for an opportunity of low volatility to enter. This gives us a real nice bonus if the market remains stagnant. The TENT pole is a Put Calendar no matter which way the market moves and it generally slightly OTM.
We've also 'scalped' the TENT pole a few times... on either as a whole, or just the short position... just a personal preference.
Hope you're well rested..... this market's in a hurry somewhere! Hard to keep up.
M~
Murray,
Have you made any research on how DD on the SPX/RUT compare to ES/ER2? I guess now that you have access to haircut, the haircut vs span margin advantage is moot, but are there any advantages on the potential ES->EW roll? Would you mind sharing your toughts on this?
Thanks
Quote from Sailing:
As far as the Diagonals.... we're playing most of your money on the RUT instead of the SPX. The RUT appears to be rotating into large caps... creating some nice volatility. The RUT Double Diagonal is up twice as profitable as the SPX, currently.
M~
For the last 2 months, I also put most of my leverage in RUT. RUT seems to give a higher reward than SPX because of higher volatility.
Percy
Murray,
I like the tent pole idea. But if the market keeps moving up haven't you opened a new position that will add to the pain as the market blasts up (like right now!). Increasing price and decreasing vol will kill that put calendar and the DD if the call strike is violated. Two birds with one heavy stone.
Wonder if adding some sort of bullish move like a call backspread would help. Or just buying some OTM calls as a hedge.
Thoughts?
LP
I like the tent pole idea. But if the market keeps moving up haven't you opened a new position that will add to the pain as the market blasts up (like right now!). Increasing price and decreasing vol will kill that put calendar and the DD if the call strike is violated. Two birds with one heavy stone.
Wonder if adding some sort of bullish move like a call backspread would help. Or just buying some OTM calls as a hedge.
Thoughts?
LP
Quote from Sailing:
Tim,
Good Question:
Not knowing which way the market will move.... is why. The original Double Diagonal has a big 'dip' in the middle, approximately halfway between the two near month short strikes. The severity of the dip is determined by the width of the short strikes and VEGA.
As the position moves one way or the other, it's nice to 'bring up' the middle. This is accomplished by purchasing a Put Calendar (or diagonal) slightly out of the money. We use half the number of original contracts for the calendar.
We prefer the Put Calendar over the Call diagonal because it has a slightly smaller cost (because of the put skew) and because it has a tendency to respond to VEGA more quickly.
By adding the TENT pole (put calendar) you've now increased your profit window (break evens slightly) and given yourself an opportunity to profit nicely in the middle of the range. This is especially nice when the market moves up (over sold, puts are inexpensive, volatility is low) and pulls back for a couple days. It even creates a great scalping opportuinty within the time frame of expiration.
This certainly is not the 'holygrail' of Put Diagonal trading, but throw in a little haircut margin, a few tent poles... and relax. It's much different than trading spreads.
M~