SPX Credit Spread Trader

Murray or Mo,

I have shorted both Rut 760 put and 760 call (of course hedged with other puts and calls), will you close both of them tomorrow before market close or will you take the set risk.

it seems that the market might gap up or down everyday (really unstable). I am at a point of maximizing my profit with my double diagonals but don't really know how to handle it at this situation.
 
Question on this though, cause Thinkorswim models positions on the different vols and does not assume static vols across all strikes or expiration months on the Cross Fly. Assuming NOV/DEC/JAN

If vols skew in the front month, then unless earnings are after market on expiration day, the front month should be at or near intrinsic value, if ITM at expiration when position will be closed. OTM options will expire worthless. If earnings come out before expiration, the IV in the front month will collpase bringing all 3 months back in line to an extent and removing the skew.

If vol skew is in the DEC month then it pushes the longs up much more than the shorts and helps the position.

Although it is rare, vols do not start skewing so great 2 months out in advance so a JAN huge skew from NOV and DEC will not be as great a concern or likely scenario.

So in the GOOG situation, is a vol skew really a major issue to affect the position when it is relatively vega flat to slightly positive.

here is an example. GOOG has huge skew in OCT v. NOV and DEC.

Assuming I had $400 strike Cross Month FLY with a day or two to expiration the entire OCT,NOV,DEC position, even with the 100% skew between OCT and NOV can be closed for a net credit. deep ITM $370 strike can be closed out for pretty much flat.

Assuming I had $420 strikes, position could be closed for small net credit.

Assuming I had $440 strikes, net credit.

Assuming I had $470 strikes, slight net debit.

So the IV skew has not affected too much the different strikes since the greeks are mostly flat.



So my assumption is that even with a skew between one of the months, the positions do not get altered that much due to net greeks.

EDIT: My comments are solely on the issue of skew between the months, not the position as a whole or its merits.

Quote from riskarb:

Totally, it's like modeling the switch vols in grains when looking at component skews/smiles. Identical in shape on index, but >mag in back months due to absolute vols. Back month vols price in vega sensitivity. I am not explaining this very well.
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Mav what software would you recommend? I use IB as my broker and need to get some 3rd party analysis software. Most of those i looked at were a bit expensive -- for instance OptionVue. Any suggestions please.

Thanks

Quote from Maverick74:

Guys, let me offer a little word of caution here and I sporadically read this thread and I'm sure this has been discussed before. If anyone on this thread is trading this so called cross month fly that has been discussed, please make sure you are using some advanced option software to model your prices. If you do not model the different months correctly you are going to get a very very different p&l profile. Please, take my advice and you can thank me later.
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Quote from MACD:

Mav what software would you recommend? I use IB as my broker and need to get some 3rd party analysis software. Most of those i looked at were a bit expensive -- for instance OptionVue. Any suggestions please.

Thanks
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Here is how I would rank them.

The best and most expensive is Pro-Opticus.

Next one down is Optionvue. Probably the best bang for the buck.

And the poor man's option software is Hoadley.

Remember the old saying, a penny wise, a pound foolish.

Pay up boys and get some quality software. You do this for a living for Christ sake! :p
 
Quote from Maverick74:

Pay up boys and get some quality software. You do this for a living for Christ sake! :p
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Are you still running a user group for OptionVue LOL?

Seriously, can you tell me what are the benefits of OptionVue over thinkorswim analytics.

The only notable difference I can deduce is the variable volatility model in OptionVue.

Ignore scanning capabilities and "trade finders" etc. for comparison's sake. There are plenty of those around.

It must have some other USPs that they don't promote very clearly or I am missing something.

Any enlightenment on this would be appreciated.

MoMoney.
 
Quote from momoneythansens:

Are you still running a user group for OptionVue LOL?

Seriously, can you tell me what are the benefits of Optionvue over thinkorswim analytics.

The only notable difference I can deduce is the variable volatility model in OptionVue.

Ignore scanning capabilities and "trade finders" etc. for comparison's sake. There are plenty of those around.

It must have some other USPs that they don't promote very clearly or I am missing.

Any englightenment on this would be appreciated.

MoMoney.
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No, I run a group on the north side of Chicago that is very similar to what Sailing does. It's an educational group. We have no commercial affiliation.

Optionvue is a very well thought out product as it should be it's had 25 years of work done on it. The variable volatility model is really only one aspect. You can model vol by strike, by month, you can model the ATM vols and modify the slope or keep the same skew. They have a database that they update every week that updates the CEV files for every stock and every index. The CEV stands for the constant elasticity of volatility. In short, it measures what the ATM vols have done historically as the underlying moves up or down. Each ticker has its own CEV file. Then, the software keeps a running count on the 3 day skew or basically a moving avg. You have 3 lines. The 1,2,3 the 2,3,4 and the 3,4,5 . The theoretical values are drawn from both the 3 day running vol skew curve as well as the CEV file. So they are pretty accurate. On top of that the software does not use standard delta, rather it uses true delta. True delta actually prices off of the actual vol smile, not a static smile so your delta position will be much more accurate.

Another nice feature it has is you can price any spread. It could be a fly, condor, vertical, etc all you do is click on the strikes and months and the ratio and it will pull the theo value of the spread as well the high and low price of the spread that day.

Another nice feature for those of you that trade options on futures, is it models the theos on the options on the futures even if you are not pulling in quotes.

I could go on and on and on. I'm getting tired now. LOL. But you get the idea. Optionvue also updates all your dividend files, all the interest rates, rolls the months for you, pulls in the new strikes, and so on. Trust me man, it's worth the 1k.
 
Quote from momoneythansens:

Are you still running a user group for OptionVue LOL?

Seriously, can you tell me what are the benefits of OptionVue over thinkorswim analytics.

The only notable difference I can deduce is the variable volatility model in OptionVue.

Ignore scanning capabilities and "trade finders" etc. for comparison's sake. There are plenty of those around.

It must have some other USPs that they don't promote very clearly or I am missing something.

Any enlightenment on this would be appreciated.

MoMoney.
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When I was shopping for an analysys software, one the main features that sold me on OV was it's understanding of future options and span margin. When modeling a position, not only you get the inital and maintenace margin but also how the margin requirements will change with price movement, time and volatility changes.

I find that being able to maximize my marging usage and knowing that I will be able to hold the positions is worth the price of the software. Before, I used to reserve 2x the initial margin for each position because I had no idea of how much I was really going to need.
 
Quote from momoneythansens:

Are you still running a user group for OptionVue LOL?

Seriously, can you tell me what are the benefits of OptionVue over thinkorswim analytics.

The only notable difference I can deduce is the variable volatility model in OptionVue.

Ignore scanning capabilities and "trade finders" etc. for comparison's sake. There are plenty of those around.

It must have some other USPs that they don't promote very clearly or I am missing something.

Any enlightenment on this would be appreciated.

MoMoney.
More...

Mo,

IMHO, one of the most important feature that is missing is the look-ahead risk confidence. As a risk manager or trader, you need to be able to measure your risk with probability, and the possible reward with probability, and adjust your leverage based on the risk confidence.

[edit] I am not aware of any commercial software that has this feature.
 
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