SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
All long vol time spreads are paradoxical. You need vol but not speed. Buying otm DDs is one problem. There is simply no margin for error [vol strip and gamma] when spot trades away. There isn't enough vol expansion to compensate for the convergence risk on your short when spot trades towards your put strikes. One thing I've learned is to never trade any time spread with > 2 weeks to expiration.
Trade shorter durations. Don't trade concurrent put and call DDs. Try to stay as close to atm as possible. Gamma kills into the strike and vega [strips, dVega/dS] away. Delta is painful anytime stat vol trades > 1 sigma.
The best time spreader I know would buy huge numbers [10k cars +] of otm put time spreads [same-strike] and get neutral [d] based upon a 7 day forward delta with index futures. IIRC, he made > $10mm one year [2001?] from a retail account. He never held a spread longer than 15 trading days.
Trade shorter durations. Don't trade concurrent put and call DDs. Try to stay as close to atm as possible. Gamma kills into the strike and vega [strips, dVega/dS] away. Delta is painful anytime stat vol trades > 1 sigma.
The best time spreader I know would buy huge numbers [10k cars +] of otm put time spreads [same-strike] and get neutral [d] based upon a 7 day forward delta with index futures. IIRC, he made > $10mm one year [2001?] from a retail account. He never held a spread longer than 15 trading days.
I had a feeling I'd get that answer. Also, "volatility is real, your gut means squat" was an acceptable answer. 
Thanks a lot for confirming and you're dead on, my market feel typically gets me into trouble more often than not.
Thanks a lot for confirming and you're dead on, my market feel typically gets me into trouble more often than not.
Was going to just call for Mo but will give it a shot.
1) Did he buy these spreads 2 wks or less like you rec'd?
2) Re: 7 day forward delta futures purchase - dependant on time to exp of short portion of time spread I guess. But why 7 days??
3) Spread held to exp or when vol increase to X amount?
4) Are you said spreader?
B/c calendars are +vega and +theta? Speed kills, huh?
Trying to maximize dTheta to offset any large dSpeed?
Wait, don't DDs contain both puts and calls by def?
Understand the latter but not the former. Why atm? Better prob of ending up at sweet spot of short strike at exp (in 2 wks or <, I assume)?
Nitpicky Qs:
1) Did he buy these spreads 2 wks or less like you rec'd?
2) Re: 7 day forward delta futures purchase - dependant on time to exp of short portion of time spread I guess. But why 7 days??
3) Spread held to exp or when vol increase to X amount?
4) Are you said spreader?
Thanks, risk:
I've wondered about this part. Many of Murray's posts mention how the debit on these spreads tends to stay fairly constant over a fairly long period of time (relative to verticals) and I've noticed myself that this is the case. Why take on more time than necessary to achieve a goal. Two weeks sounds good. Maybe I'll look at a diagonal tomorrow. Well actually I'm thinking about doing something that amounts to heresy on this thread. I may just buy a call and ride the market up. Looks like we're headed to Dow 12000 (SPX equivalent of 1365 to 1370?).
I've wondered about this part. Many of Murray's posts mention how the debit on these spreads tends to stay fairly constant over a fairly long period of time (relative to verticals) and I've noticed myself that this is the case. Why take on more time than necessary to achieve a goal. Two weeks sounds good. Maybe I'll look at a diagonal tomorrow. Well actually I'm thinking about doing something that amounts to heresy on this thread. I may just buy a call and ride the market up. Looks like we're headed to Dow 12000 (SPX equivalent of 1365 to 1370?).
So that you are short downside gamma i would think. Easier to manage the short leg and stay close to neutrality vs had you sold it OTM where any vega gains will not be enough to offset your -gammas, especially true on the call side. I'd be surprised if anyone is making money on long call diagonals(short strike first) the last 2 months.