SPX Credit Spread Trader

[medontcall]

Maybe this was covered in an earlier post, but I have not had a chance to read all of them. Why hedge with:

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

when you could hedge with

Long 10 OCT SPX 1380 Calls @ $1.5 for $1,500

It seems like you could save $500 or so dollars and some commissions, by using SPX for the hedge.

Thanks!

Quote from optioncoach:

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.

 

[dagnyt]

Quote from scoobie27:

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.

All of this is a matter of how much risk we are willing to take and whether it's more important to preserve your capital or aim for maximum profits.

I choose to preserve capital and allow the profits to take care of themselves. Thus, I am quicker to close than some. As a CBOE market maker, I played the 'stubborn' game many times and it was costly.

Glad you are ahead of the game. It's not so easy with a one-direction market (when selling premium).

Mark

 

[LeonPhelps]

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.

Good point to highlight. Diversification of underlyings is good. I'm playing with S&P,Naz&R2K. R2K doing well, Naz and S&P are challenging right now.

 

[El OchoCinco]

You certainly can use the 10 SPX instead of the 100 SPYs and for me it comes down to personl preference.

I can get in and out of the SPYs faster and they have tighter bid ask spreads. When those SPX calls move ATM the spreads will move as wide as $1.20 on average. So I might have to give up about $0.80 on the ask to get out. SPYs spreads usually hover around $0.05 to $0.10 and getting out is easier.

It is my personal preference really. When I hedge I want to be able to sell the hedge for as much as I can get to offset an adjustment or reduce my loss. With the wide bid/ask spread of SPX, if the index moves, I got to overcome the spread before my hedge makes some real money. SPY hedges have a smaller hump to overcome in my personal opinion.

No right or wrong, just experience that ti has been easier to move in and out of SPYs for hedges.

Quote from medontcall:

Maybe this was covered in an earlier post, but I have not had a chance to read all of them. Why hedge with:

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

when you could hedge with

Long 10 OCT SPX 1380 Calls @ $1.5 for $1,500

It seems like you could save $500 or so dollars and some commissions, by using SPX for the hedge.

Thanks!

 

[El OchoCinco]

Call Diagonal Spread

Opened a ratioed diagonal call spread lookin for sideways chop for the next few weeks and then stronger move higher in NOV:

- 85 OCT EW 1375 Calls @ 6.75
+ 120 NOV ES 1400 Calls @ 4.05

Net Credit = $4,200

With the ratio, the hit if the market moves higher will not be as hard initially and it will be easier to ajdust to lower risk position with the potential to bring in more premium.

 

[chrdso]

I rolled out and up over the past 2 months.
Profits for the year wiped out. Loss for this month.


Have to roll again.

The question is should I roll up (oct), or out (nov), or close with any dip over the next few days.

Rolling up seems to have the least loss, if the market does not head higher into Oct. expr. (Nov. we usually move higher so rolling out not a good choice...?)


Any thoughts? Anyone?

 

[Sailing]

You don't roll for profits or losses.

A roll is simply closing out one position and entering another.

So, consider what positions you would like to enter going forward. Close out the current positions, and enter your new positions based on your new outlook. There is no short cut / savings plan in rolls and adjustments.

Cost is not the issue to consider! Risk is the issue

M~

Quote from chrdso:

I rolled out and up over the past 2 months.
Profits for the year wiped out. Loss for this month.


Have to roll again.

The question is should I roll up (oct), or out (nov), or close with any dip over the next few days.

Rolling up seems to have the least loss, if the market does not head higher into Oct. expr. (Nov. we usually move higher so rolling out not a good choice...?)


Any thoughts? Anyone?

 

[riskarb]

Quote from optioncoach:

Call Diagonal Spread

Opened a ratioed diagonal call spread lookin for sideways chop for the next few weeks and then stronger move higher in NOV:

- 85 OCT EW 1375 Calls @ 6.75
+ 120 NOV ES 1400 Calls @ 4.05

Net Credit = $4,200

With the ratio, the hit if the market moves higher will not be as hard initially and it will be easier to ajdust to lower risk position with the potential to bring in more premium.

7:5 but at the expense of wide strikes. Why not buy a couple hundred of the Oct/Nov 1330 put spreads? Long vol, strip and decay. Or even use those weeklies.

 

[scoobie27]

Quote from dagnyt:

All of this is a matter of how much risk we are willing to take and whether it's more important to preserve your capital or aim for maximum profits.

I choose to preserve capital and allow the profits to take care of themselves. Thus, I am quicker to close than some. As a CBOE market maker, I played the 'stubborn' game many times and it was costly.

Glad you are ahead of the game. It's not so easy with a one-direction market (when selling premium).

Mark

I think I have my preservation of capital down pat, thanks to the drilling in my head the importance of it by many posters here. I now have no trouble closing threatened positions instinctively when the market is at a certain distance from the short strike. But I think losses to the account will still be inevitable if the market only moves in one direction even if one has strict capital preservation mentality. A one directional market will keep hitting my stops at different levels be they Call spreads or Put spreads, forcing me to close multiple position for predetermined losses.

Just had a good look at the market in 2002 when it had a very steep fall for most of the year and im wondering how any premium seller could have survived that :eek: Don't know how I would survive that if i was in the misdt of that market. Its way steeper and way longer duration than the bull market we're having now (and most people are having trouble with the current market) Maybe one would be happy with a small loss for the year for that kind of market. Even LCM has some small loss years and that's still a good result considering. Just thinking aloud.

Signing out for the day.

Cheers,
Scoobie

 

[LeonPhelps]

Quote from chrdso:

I rolled out and up over the past 2 months.
Profits for the year wiped out. Loss for this month.


Have to roll again.

The question is should I roll up (oct), or out (nov), or close with any dip over the next few days.

Rolling up seems to have the least loss, if the market does not head higher into Oct. expr. (Nov. we usually move higher so rolling out not a good choice...?)


Any thoughts? Anyone?

Heartfelt rec: revamp strategy. Do not roll - close and reeval. Checkout rally's discuss of CTM with 1:1 - 1:2 R/R. Just say no to martingale. Incr bet once at most, then out if still pain. Diversify assets/instruments. For some education and entertainment check out Dan Sharidan at CBOE - webcasts. Make sure you ask some Q's logged on as "Kulifornia Dude" and "Yo! Goombah"