SPX Credit Spread Trader

[El OchoCinco]

Guys, when I increase vols the loss zone stretches on a huge drop in price but I would still be able to close out the position before expiration for a limited loss.

Of course I am gonna look at how this looks for puts as well....

 

[riskarb]

Quote from optioncoach:

Guys, when I increase vols the loss zone stretches on a huge drop in price but I would still be able to close out the position before expiration for a limited loss.

Of course I am gonna look at how this looks for puts as well....

I am speaking specifically on how the position reacts with a trade to the strike, not away. Strip vols drop, but otm call vols will actually increase due to smile characteristics. Take a look at Nov 1350 vols vs. 1395 vols... 200bp attributable to smile. A reasonable move lower won't increase deep otm call vols; again, shape of the skew.

 

[El OchoCinco]

I think the haircut should be pretty much flat... based on the deltas.

Quote from Sailing:

The Haircut Margin on this trade is interesting also...

M~

 

[El OchoCinco]

So if it moves to the ATM strike, won't the OTM strike vols drop as they become ATM?

Even if I add 2% on the vols in the position it still has a profit at the 1390 strike at expiration of the first wing.

Quote from riskarb:

I am speaking specifically on how the position reacts with a trade to the strike, not away. Strip vols drop, but otm call vols will actually increase due to smile characteristics. Take a look at Nov 1350 vols vs. 1395 vols... 200bp attributable to smile.

 

[momoneythansens]

Quote from riskarb:

I am speaking specifically on how the position reacts with a trade to the strike, not away. Strip vols drop, but otm call vols will actually increase due to smile characteristics. Take a look at Nov 1350 vols vs. 1395 vols... 200bp attributable to smile. A reasonable move lower won't increase deep otm call vols; again, shape of the skew.

Can't model skew on ToS retail platform Only on ThinkPipes.

 

[riskarb]

Quote from optioncoach:

So if it moves to the ATM strike, won't the OTM strike vols drop as they become ATM?

Even if I add 2% on the vols in the position it still has a profit at the 1390 strike at expiration of the first wing.

Your strikes are 1390, currently otm. 2 devs otm on the calls equates to -200bp lower on skew. You need to mode vols at discrete intervals, or use current atm vols in your analysis of a trade to 1390.

1390 strike vols will not be trading at 8.85%. Use the current atm vols to model a trade to your strike.

Edit: corrected strike to 1390. No impact on vols. Model +2.00 on vols.

 

[El OchoCinco]

Risk:

1390 strikes... sorry if I wrote it wrong somewhere...

Also I changed the model to assume IV of about 14% and the risk graph changes only a little (net vega of the spread is almost flat so not surprising).

 

[riskarb]

Quote from momoneythansens:

Can't model skew on ToS retail platform Only on ThinkPipes.

Seriously? What a toy. Anyway, until you guys wise-up, model a single vol at 10.50%. Not perfect, but it will give MinMax figures in-line with reality.

 

[riskarb]

Quote from optioncoach:

Risk:

1390 strikes... sorry if I wrote it wrong somewhere...

Also I changed the model to assume IV of about 14% and the risk graph changes only a little (net vega of the spread is almost flat so not surprising).

Yeah, the vegas are small.

 

[momoneythansens]

Quote from riskarb:

Seriously? What a toy. Anyway, until you guys wise-up, model a single vol at 10.50%. Not perfect, but it will give MinMax figures in-line with reality.

You mean flat skew? Can't do that either. All Strip vols can be shifted up or down but only together. EDIT: Current market skew is used in the model.