SPX Credit Spread Trader

spreadn00b · Oct 4, 2006

OK, I decided to buy back my short put so now I'm going to be even more bearish (which is my bias at this time) and will adjust this when my thoughts change. I've effectively "doubled up", but if the market continues to display "irrational exuberance", I'll not be out much at all.

Quote from spreadn00b:

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.

momoneythansens · Oct 4, 2006

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).

Are you talking about collars here (matching tenor on the CALLs and PUTs) i.e. synthetic bull verticals: limited risk/limited reward?

I'm missing the connection with haircut

If you don't want to deal with the e-mailing you can always upload your presentation to a file hoster such as www.filefactory.com or similar (Google: free file hosting)

MoMoney.

damon_achey · Oct 4, 2006

Quote from Sailing:

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~

With permission I've posted this on the net for anyone else to download

www.achey.net/ET/Options_600-Proprietary_Trading.ppt

Have fun,
Damon

scoobie27 · Oct 4, 2006

Quote from rdemyan:

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.

No worries, will let you know if I do adjust. This closing at the short strike is something I picked up from Mark/dagnyt and is something im experimenting with. But thats not set in stone and I sometimes close 10-15pts from short strike, cause gamma really hurts the last 10pts. Im also scaling into my positions. Also moving more towards Credit diagonals as well, ala Mark. Thanks Mark

Not sure if I'll be successful but will give it a go and see how i fare. So basically im currently all over the place trying different things but leaning towards credit diagonals. But whatever the strategy, this market action is not too good for any kind of premium selling or short gamma? strategy, be they credit spreads or credit diagonals.

Im trading more ES options now and the spreads are not that wide and its quite easy to get filled if one not too agressive.

Anyway, will stop carrying on and will update when I close. I've already priced what its cost to close at the short and its about 5.00 debit.

Cheers

dagnyt · Oct 4, 2006

Quote from scoobie27:

Thanks Mark

Cheers

Hope it works for you.

I find that it hurts to close, but because it limits losses, it makes the overall strategy successful. And that's the bottom line.

Mark

ryank · Oct 4, 2006

With this market I don't think it matters what the jobs numbers are going to be Friday, the market will keep moving higher. I picked a bad month to put on bearish positions didn't I?

rdemyan · Oct 4, 2006

Ryan:

Which "bearish" positions are you holding. Since misery loves company, enquiring minds want to know.

Thanks.

Quote from ryank:

With this market I don't think it matters what the jobs numbers are going to be Friday, the market will keep moving higher. I picked a bad month to put on bearish positions didn't I?

rallymode · Oct 4, 2006

Quote from ryank:

With this market I don't think it matters what the jobs numbers are going to be Friday, the market will keep moving higher. I picked a bad month to put on bearish positions didn't I?

If it makes you feel any better, you are not the only one seeing red.

ryank · Oct 4, 2006

Quote from rallymode:

If it makes you feel any better, you are not the only one seeing red.

I've got bearish XEO and RUT postions that are in the red. Actually, my RUT position was in good shape until today, sucked all the profit out of it and now back to a slight shade of red. This upward run and draining of volatility is not helping my SPX diagonals either. Need a decent pullback that lasts longer then a few hours sometime soon to help me out.

El OchoCinco · Oct 4, 2006

For those of you nervous for me on my 1360/1375 adjusted into ES/EW diagonal, I scaled out of half the position on the big drop the other day and today rolled into a 1375/1380 Bull Call Spread.

So I took my shorts off the table and took a small loss and have a bull call spread since today's leap points us higher.

Even if I close the bull call spread for almost nothing if the market crashes, this would be my first loss of any significance in about 3 years. And in case any of you are wondering, no this does not wipe out my credits from the past few years at all, I am still net positive by a long shot. If I did absolutely nothing and let it run to 1375, then I would have been in trouble. 1357 was my exit point.

.

So I raise I glass to my first little drawdown and smile that my accounts are still positive over all and I cut my risk when needed to. That is the secret for longevity.

A loss is not a big deal if you keep it a small loss relative to your account. If you stare and watch it mushroom then you are in trouble. By scaling out in the downward move, I was able to get out today at a smaller loss then if I left the position whole. ROlling into the bull call spread took in more premium to dull the pain and I can make more money if we keep running since the bull call spread is in the OCT EW call cycle.

So all in all, I amhappy with the way it turned out despite the market moving against me. Tomorrow I will be grabbing deep OTM call spreads for NOV