SPX Credit Spread Trader

[rallymode]

Quote from domestic:

rally, i am curious to see how your p/l has been through this runnup? we all know how most everyone here has done.
I am sitting on my first loss since aug 05. and its not really a loss in my eyes untill i have adjusted. this is exactly my point, when you are naked premium or short cheap gamma you must close. I do not. It's no free lunch as i've given up a part of the payoff for this luxury. It's a tradeoff. A tradeoff that makes sense given my directional signals.



mine is the profitable one.
It could be given your underlying approach. Since i dont know your entry rules i cant argue that point. But in general, i would agree that naked index premo is more rewarding than being short cheap gamma in a vertical but as i've said before, not being forced out of a trade is worth gold to me personally though i've recently made changes to my style that entail a more active approach replacing the CTM spreads with naked premium and barrier exotics.

 

[domestic]

Quote from rallymode:
mine is the profitable one.

again, only profitable at this point in time. i agree that not having to adjust is very important, that is why i trade this way. but, when forced to adjust i do well with only one leg to deal with. i must admit ,(and i trade your way also,ctm.just not as much as my naked trading); it is less un-nerving to close a 2.5 credit for 5 as opposed to closing a .5 credit for 5 or ten points ! much better money management imo.

 

[dagnyt]

Quote from domestic:


in my trading... i am wfotm naked.

Beware: the black swan is not dead.

Mark

 

[yip1997]

Quote from domestic:

rally, i am curious to see how your p/l has been through this runnup? we all know how most everyone here has done.
times like these is exactly the perfect opportunity to see how each strategy performs. do you agree?

for my opinion and thoughts.... everytime riskarb writes; i hear my first cousin echoing. seven years ago i placed him in a job with my best friend at bear stearns. at that time i knew much more than him; but i knew that despite the nepotism, he would excel beyond many others. he has move on and up since then.
now he speaks like risk, explaining about short gamma, and all that other stuff. my point is, others understand how you can be wiped out. for me, i need to go to the local university library and study what they tell us. it cannot be learned at home on the computer, imo. i still have not learned the "big picture" of what they teach, so instead i trade the following way.....

in my trading, similar to fotm spreads, i am wfotm naked. my shorts are still 52 pts away on the call side. with this recent activity, my short calls are trading for less than when i wrote them. i also received imo just compensation when they were put on. my point being, out of three strategies(ctm, fotm, and wtfotm) , in the current environment(strictly concerning current situation) mine is the profitable one. not gloating at all, i just feel it is important to show in real time how different trading strategies behave in certain conditions.

It is not a strategy that earns you money. It is your money management skill that gives you an edge.

I have both RUT DD and RUT IC. The short strikes of call diagonal is still 25 points away, and of call veritcal is 45 points away. I am making good money in the sep and hopefully in oct too while I am taking a long vacation in China.

I used to write naked calls and puts before I discovered this forum. I have been switching to verticals and diagonals since July, and they served me well so far.

Can I conclude that diagonals and verticals are the best strategies? No!!! It depends on the selection of your strikes (actually the selection of the greeks) and your trading styles even under the current condition.

Percy

 

[yip1997]

Quote from momoneythansens:

Yeah, just remember on the trade page the probability of expiring value is derived from market prices for that particular option series in the same way that implied volatility is derived for a given option series e.g.

SPX 1300 OCT PUT IV: 14.59% DELTA: -0.09

Probability of expiring ITM: 9.02%

However, on the analyze page, the probability cone is constructed based on the IV level plugged into the model. Normally, it picks up the front month/week ATM IV so you may need to adjust it to the appropriate level. Thanks to the weeklies on SPX,OEX and XEO, a misleading IV level (and also expiration date) is usually defaulted. The front month ATM IV is currently 9.95%. Using this value we get:

1300 price level.

Probability of expiring ITM: 2.41%

The difference in the two probability outputs is of course due to the volatility skew. The demand for OTM PUTs can make it look like the market thinks they are more likely to finish in the money than your Black Scholes model would have you otherwise believe.

Which one to use? Well beyond the scope of this thread LOL.

MoMoney.

Why don't they use HV for computing the prob? Is there a way of looking at HV using TOS?

 

[rallymode]

Quote from domestic:

again, only profitable at this point in time.

well sure, if im not mistaken, you trade the rut not the spx, which has lagged behind in this rally and is nowhere near the may highs. Not to spit on your good month but it wasnt your strat per se, but rather your instrument pick. Moot point at best. Had you sold naked FOTM spx calls, you'd be looking at losses 3-4 fold while im currently losing less than 1:1.

i am personally not opposed to selling naked premium in those cases where i am willing to take on the gap and whipsaw risk, but if flexibility is important to my signal then i will bound the gamma and get the best r/r possible that matches my signal margin of error. In any case, Steve Cohen himself couldnt sell me on shorting a <40delta strike naked, i would never fall this far to the dark side.

 

[rsflint]

Mo & Rally, thanks for your responses!

 

[yip1997]

Quote from rallymode:

well sure, if im not mistaken, you trade the rut not the spx, which has lagged behind in this rally and is nowhere near the may highs. Not to spit on your good month but it wasnt your strat per se, but rather your instrument pick.

That explains why I am making $ with both call diagonal and vertical.

 

[jeffm]

Since Mark has mentioned the notorious beast, I thought I would provide some info on what the thing looks like.

This data was compiled a few months ago by a member of this board. It is a tremendous product, extremely informative and I am ashamed to admit that I don't remember who created it ryank perhaps?

It shows the montly changes in SPX from 1986 to present (as of a few months ago), including intramonth max moves.

Peruse and enjoy.

Quote from dagnyt:

Beware: the black swan is not dead.

Mark

 

[tplast]

Quote from rallymode:
I am sitting on my first loss since aug 05. and its not really a loss in my eyes untill i have adjusted. this is exactly my point, when you are naked premium or short cheap gamma you must close. I do not. It's no free lunch as i've given up a part of the payoff for this luxury. It's a tradeoff. A tradeoff that makes sense given my directional signals.

rally, are you talking about CTM spreads here? My OCT 1335/1350 call spreads are way ITM now. I sold them for an average of 5.9 and can close them for about 11.5, so I'm still within 1:1 r/r.

My plan calls for closing when 1:1 is exceeded, so I'll probably close them by tomorrow if we don't get a pullback. But I curious about what kind of adjustements you make for CTM. Would you mind sharing?

Thanks