SPX Credit Spread Trader

Quote from Sailing:

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.

M~
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Murray,

Do you buy OTM puts, changing the CC to a collar?

Do you buy the same strike put, turning the CC into a forward conversion?

Mark
 
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~ [/B]
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Murray,

Looking at the IV of SPX vs IV of RUT on ivolatility.com shows SPX currently at 18.6% of its 52 week range and RUT at 47.4% of its 52 week range. So if we are playing VEGA, SPX would appear to be more likely to get a VEGA spike as it is in the lower part of its range. However, if you look at a risk graph of SPX vs Rut double diagonals, the RUT has a risk/reward ratio of 56.5% vs SPX's of 36.4%. So how do you decide which of these two factors is more important- R/R vs VEGA?

Tim
 
We demo'd using next month and current month one strike down out-of-the-money puts. We sold an OTM Call.. and also did an example of a slightly ITM call.

M~



Quote from dagnyt:

Murray,

Do you buy OTM puts, changing the CC to a collar?

Do you buy the same strike put, turning the CC into a forward conversion?

Mark
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Adjusted to the Oct SPX 1370/1385.

Overall results on this trade:

Initial 1360/1370 credit of $0.60
Debit to close the 1360/1370 of $2.50
Credit for the 1370/1385 of $1.55

Net on this trade (including adjustment) is $0.35 debit.

I'm looking at putting on a bull put to bring in more credit.




Quote from rdemyan:

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.
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it's not what they're currently at, although I like you're thinking... you're anticipating where they may be in a month from now. Not that anyone really knows.

The trend lately has been the sell of the RUT... and movement into the SPX. It's the selling off of the RUT which will create longer term implied volatility increases.

M~



Quote from dqtmg2:

Murray,

Looking at the IV of SPX vs IV of RUT on ivolatility.com shows SPX currently at 18.6% of its 52 week range and RUT at 47.4% of its 52 week range. So if we are playing VEGA, SPX would appear to be more likely to get a VEGA spike as it is in the lower part of its range. However, if you look at a risk graph of SPX vs Rut double diagonals, the RUT has a risk/reward ratio of 56.5% vs SPX's of 36.4%. So how do you decide which of these two factors is more important- R/R vs VEGA?

Tim
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Market's going nuts :eek: So much for selling Calls being safer than Puts. Sure it goes up slower, but this is still not the best scenario.

Thought the nuclear standoff with North Korea would scare the market down a little but o such luck :mad:
 
The idea here is to take advantage of a movement and/or a low volatility condition. You're trying to play the odds/pullback ... looking for increased volatility.

Anticipating the direction is tough, but playing the range tends to be a more successful approach.

Although... this market is sure washing out the shorts.

M~

Quote from LeonPhelps:

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
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Quote from rdemyan:

Adjusted to the Oct SPX 1370/1385.

Overall results on this trade:

Initial 1360/1370 credit of $0.60
Debit to close the 1360/1370 of $2.50
Credit for the 1370/1385 of $1.55

Net on this trade (including adjustment) is $0.35 debit.

I'm looking at putting on a bull put to bring in more credit.
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Hi rdemyan

I have the same 1360/1370 on the ES and it'll cost me 4.50 debit to close it. Opened for 1.90. Looks like you're practising good risk management to close yours. But my plan is to close when ES hits my short 1360 strike. I have 5 contracts. Will open some more Calls at higher strikes and also open a SMALL amount of Bull Puts as well when and if i do close my 1360/1370s. Good market action to toughen up our hides :)
 
Scoobie:

Looks like you're only 4 points away. If you have to adjust, please post all of your numbers if you don't mind. I don't recall any DOTM spreaders on this thread (I'm sure Mo will correct me if I'm wrong) adjusting at their short strike. It will be interesting to see what the net debit is for just the call side. I've always wondered about the 15 point trigger that we usually use. It seems to be pretty good, but I have wondered how close one can go. I suppose it could be modeled, but with wide b/a, actuals tend to be significantly different from theoreticals. OTOH, the closer a trade is put on ATM, usually the smaller the b/a and better fills should be possible. It would just be interesting to see a real world example and a good learning experience for us.

Having said that I wish you good luck and hope you don't have to adjust.





Quote from scoobie27:

Hi rdemyan

I have the same 1360/1370 on the ES and it'll cost me 4.50 debit to close it. Opened for 1.90. Looks like you're practising good risk management to close yours. But my plan is to close when ES hits my short 1360 strike. I have 5 contracts. Will open some more Calls at higher strikes and also open a SMALL amount of Bull Puts as well when and if i do close my 1360/1370s. Good market action to toughen up our hides :)
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