SPX Credit Spread Trader

Took my lumps with a diagonal spead and closed my ITM shorts (RUI 730).

What reduced the pain is that I am still ahead for the month from my other diagonals. Not making a lot, but being ahead feels lucky in this environment and I didn't want to take the risk of holding onto those 730s.

Mark
 
Quote from tplast:


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?
More...

Once i realize my signal was wrong, sometimes i roll it out, sometimes i leave it on to capture a reversal and open a second position in the next month and increase the size to match the max loss of the first one. Martingale of sorts. Admittedly, more often than not, i will simply offset on the first chance of PnL neutrality or close to it as it is often hard to justify placing the second position on its own merits.
 
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. Moot point at best. Had you sold naked FOTM spx calls,
More...

may rut high was 782.50. my shorts are 795 and 800. you are right in that other indexes busted through highs, and rut has not. if my calls (sold @ 1 and currently @ .25 and .20 or so) were to go to 4 or 5 , i will buy and roll. if they were to go to 10-11-12, etc it would be difficult to roll. current atm calls for oct are 12-13. i certainly hope that i do not allow it to get away like that. i do have a stop to go long at 790 futures.
anyway, i have orders out to close my calls. if they hit, i will net about .8 per position. it is also an important point to know that it goes down even faster than going up! you must risk in order to make money. i have done the roll before, and knock on wood.... i was able to.
 
SPX CREDIT SPREAD POSITION

SOLD 400 OCT SPX 1385/1390 Put Spreads @ $0.30

Net Credit = $12,000

Max Risk = $188,000

Return = 6.4%


I also added the below partial hedge given the shorter distance OTM:

Long 100 OCT SPY 138 Calls @ $0.20 or $2,000


COMBINED NET CREDIT = $10,000

Combined Net Return = 5.26%


We may still move higher but I feel the momentum is slowing overall and with just over 2 weeks to expiration I am taking a 35 point cushion.
 
Quote from domestic:

you are right in that other indexes busted through highs, and rut has not. if my calls (sold @ 1 and currently @ .25 and .20 or so) were to go to 4 or 5 , i will buy and roll.
More...

Domestic, i want you to think about this for a moment and you dont have to agree with me. Infact, i doubt that you will. :)

The mere fact that you will roll them doesnt alleviate any PnL discomfort at the infliction point. How long can you keep rolling 3-4 fold losses? If i wanted to roll i can simply do it also at 1:1, 1:2 r/r. Who do you think will stay solvent longer?

As i said previously, the only way the PnL of short cheap gamma(bounded or naked) will outperform is if you get a slow,gradual move right up to your predetermined adjustment point leading up to the last week of the cycle. Which is where my CTM spread will be slightly ITM and showing close to max losses. Admittedly, having only 1 leg to adjust as in your case would be better so i get that but it is almost a linear move to that point and very path dependent. It's hard for me to even imagine such a signal but if this is infact a common occurrence once you enter your trades then i can understand why a CTM spread would not be desirable but is shorting cheap gamma against a trending instrument the best bet? Just some food for thought. Good discussion given the current market.
 
Quote from LeonPhelps:

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?
dunno
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??
to limit whipsaws and define accumulated thetas
3) Spread held to exp or when vol increase to X amount?
unknown
4) Are you said spreader?:p
ha, no, not me
More...

Time spreads have the highest $vega of any position [same-strike]. The gamma/theta is greatest when atm, but still of small magnitude. Deep otm strikes invert modality on g/t, therefore you reduce your g/t risk as your dvegas increase. This occurs on call or put spreads, as the curvature partials assume a Gaussian distro; IOW, a flat skew.

There isn't any margin of error in the spread due to the modal-flip. The atm +theta quckly losses as spot trades away. Best method is to trade a delta spread into a directional bias.

ATM diagonals benefit from -dgamma on the atm short and +dgamma and +dvega on otm long. They carry less $gamma, so they're preferred over a same strike time spread if trading atm.

To summarize: If trading passive[no spot bias], look to atm diagonals or otm time spreads. Hedge the otm time spreads with gamma or spot[futures].
 
COORECTION - CALL SPREADS... NOT PUTS

SPX CREDIT SPREAD POSITION

SOLD 400 OCT SPX 1385/1390 CALL Spreads @ $0.30

Net Credit = $12,000

Max Risk = $188,000

Return = 6.4%


I also added the below partial hedge given the shorter distance OTM:

Long 100 OCT SPY 138 Calls @ $0.20 or $2,000


COMBINED NET CREDIT = $10,000

Combined Net Return = 5.26%


We may still move higher but I feel the momentum is slowing overall and with just over 2 weeks to expiration I am taking a 35 point cushion.
 
Quote from dagnyt:

Took my lumps with a diagonal spead and closed my ITM shorts (RUI 730).

What reduced the pain is that I am still ahead for the month from my other diagonals. Not making a lot, but being ahead feels lucky in this environment and I didn't want to take the risk of holding onto those 730s.

Mark
More...

Im ahead as well but only very slightly. One hit to my short strike of one of my positions (ie1360/1370) really took the wind out of my accumulated profits so far.
 
You must log in or register to reply here.
Back
Top