SPX Credit Spread Trader

THANSK AGAIN!

Yeah somewhere between $40k and $50k is what I thought with a haircut little less than that. Check out the max profit though and max risk.... pretty awesome r/r/.....


Quote from tplast:

For the 1400 strike, I get $43,215 initial and $34,704 maintenance. This is including the $20,590 credit.
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Quote from optioncoach:

1335 strike on those puts? That is not too far OTM to have an effect to offset losses on the futures?
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Not at expiration, but they'll do the job for a while.

The puts are trading at around -20 deltas. In a 4x1 ratio, each straddle is about +20 deltas.

As of today, the delta neutral point is at 1361. I plan to hold it for 2 weeks at the most. At that point, it will be delta neutral at 1351.
 
Coach:

Can we do an analysis on the opposite position, i.e. BTO 25/STO 50/BTO 25 (since us retail guys can't do what you're doing). Presumably this would have involved about a $2.90 debit. I guess once the October 1400 calls expire, one would need to add another 25 long calls otherwise there would be 25 naked November calls. Also, the BTO 25 October calls really does very little except, I think, to provide one week of coverage for the naked shorts.

So this opposite position does not seem very appealing. Am I missing something here.

Quote from optioncoach:

NEW SPX CROSS MONTH FLY

OK I finally started using NCompass to do some equity options and wanted to place an SPX Cross-Month Fly to test the haircut and profitability and avoid some of the premium issues I might run in to with he futures options and different underlying futures expirations. So for your education, here is my first SPX foray:


STO 25 OCT SPX 1400 Calls @ $.20

BTO 50 NOV SPX 1400 Calls @ $3.70

STO 25 DEC SPX 1400 Calls @ $10.10

Net credit = $2.90 or $7,250




GOOD NEWS: Called in to determine my haricut and I was told...

wait for it....

.....

No haircut popped up for the postion. In other words it was delta neutral at the opening of it so no haircut or margin. Of course that could change as the position moves but it will remain close to delta neutral for some time so the haircut should not pick up. Tomorrow I will have a detailed picture of my haircut for this position and see.
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If my position has a great R/R ratio then it makes sense that the opposite position is not very appealing.... :)

Quote from rdemyan:



So this opposite position does not seem very appealing. Am I missing something here.
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Quote from optioncoach:

If my position has a great R/R ratio then it makes sense that the opposite position is not very appealing.... :)
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Any position that has a -static expectancy should have a great R/R away.
 
Quote from optioncoach:

NEW SPX CROSS MONTH FLY


STO 25 OCT SPX 1400 Calls @ $.20

BTO 50 NOV SPX 1400 Calls @ $3.70

STO 25 DEC SPX 1400 Calls @ $10.10

Net credit = $2.90 or $7,250
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Is selling the near term option for 20 cents what you really want to do?

If SPX (or VIX) does not undergo a significant move in the next few days, how are you going to make any money?

Mark
 
The worst scenario is if the market goes nowhere. Even so the loss is minimal. It is better to put this on with a little more time to expiration but I only have a week and want to test it out.

I am looking at adjustments to make during the week if the market is going to go nowhere. If the market however has a nice move, the profits are pretty big comparatively.

Quote from dagnyt:

Is selling the near term option for 20 cents what you really want to do?

If SPX (or VIX) does not undergo a significant move in the next few days, how are you going to make any money?

Mark
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ADDITIONAL ADJUSTMENT TO CROSS POSITIONS:

Thanks to the discussions here, I was reminded that the DEC EW contract in the cross-fly will be priced off the MAR futures contract which will most likely have a 10 point premium and that would negatively affect the position. In order to correct the situation and give the position a better shot at a profit with the market continuing to move higher, I bought back the DEC EW 1385 short call and sold a DEC EW 1395 Call for a net debit of 6.00 or $7,500. (I believe Mo suggested the idea and it was a good one). It eats into my combined net credit but puts me in a better position for a profit at OCT expiration. So I am adding in that adjustment.


1. My original position 1385 25*50 Call Fly

SHORT 25 OCT EW 1385 Calls @ 2.50 (+$3,125.00)

LONG 50 NOV EW 1385 Calls @ 9.75 (-$24,375.00)

SHORT 25 DEC EW 1385 Calls @ 21.00 (+$26,250.00)

NET CREDIT = $5,000 or 4.00 * 25


2. I added the following:

SHORT 25 OCT EW 1330 Puts @ 4.70 ($5,875)
LONG 50 NOV ES 1330 Puts @ 10.50 ($26,250
SHORT 25 DEC ES 1330 Puts @ 17.25 ($21,562.50)

NET CREDIT = $1,187.50 or .95 * 25

COMBINED NET CREDIT = $6,187.50 or 4.95*25


3. I added a short calendar near my call FLY strike.

SOLD 15 NOV EW 1380 Calls @ 12.25
LONG 15 OCT EW 1380 Calls @ 4.85

Net Credit = $5,550 or 7.40.

4. Rolled my DEC EW 1385 strike into a DEC ew 1395 strike to reduce the effect of the DEC EW premium the options will trade at for a net debit of $7,500.. I think the cost is worth it given the profit potential.




COMBINED NEW CREDIT OF ALL = $4,237.50
 
Looks like we've come a long way since this thread started. Time flies, right? (pun intented) :p

I had to ask this fundamental question in the current environment:

Are we getting paid enough for the risk we're assuming from selling call spreads?

It's not the low VIX levels that bother me. VIX has been sub-twelve for years... but during those days, the market (SPX) was going sideways. So there was low risk, hence the low premiums were fine.

But now, the market's been rallying like nobody's business and the VIX is sub-eleven! The cheap short call spreads are getting hammered.

Is this an environment for iron condors or even (double) diagonals (where that elusive IV spike hasnt come for expirations together) etc? Murray recently put on a diagonal trade bcos "VIX was low at 14". VIX is now 10.75.

Any thoughts / views on this? Thank you.
 
I've been doing some analysis on this and it seems like it would probably be preferable to use indices that don't have next morning expiration (i.e. SET for the SPX), particularly if these straddle/strangle swaps are put on within the last week or two.

So as the underlying moves away from the peak on the expiration curve, the adjustment would be to buy back the straddle and sell a new straddle that moves the peak in the direction the underlying is moving (repositioning the tent pole).
Is that correct?


Quote from momoneythansens:

Yes, they are calendarized butterflies. In other circles (e.g. thinkorswim) they are known as straddle/strangle swaps.

They are one particular type of double diagonal and as such, a lot of the information discussed on double diagonals on this thread apply to them. They are long VEGA and so best placed when volatility is low.

The key difference is that the front month short straddle has different gamma characteristics to front month short strangles. This has implications for risk management and also win/loss ratios: expiration profit zone is not as wide.

Choosing the front month straddle strike is inherently tricky though. The position, much like a normal calendar is somewhat schizophrenic. In essence, the front month options want the opposite of the back month options.

I'm not aware of much external information on these positions. The behavior can be deduced from experience with calendars and regular flies. So that is perhaps where to start any research. The narrower your back month strangle, the more the time fly behaves like a calendar.

Here are couple of basic links though that I'm aware of:

Red Option Advisory: http://www.redoption.com/strategy/50/
Ensign Software:
http://www.ensignsoftware.com/tips/tradingtips55.htm

Good luck.

MoMoney.
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