SPX Credit Spread Trader

[riskarb]

Quote from Heatheranderson:

So, i am beginning to favor strategies like these.

You're going from -gamma to +gamma. Sure, they look good when the market goes parabolic. Next month when vols decline you'll be cursing the long gamma/vol strategies.

 

[Hybone]

Quote from rdemyan:

...... Admittedly, these are expiration graphs and perhaps that is where the flaw in my thinking is.

This is exactly the reason. If you back a couple days from Exp. date then you would see why you lost money.

 

[yip1997]

Quote from riskarb:

You're going from -gamma to +gamma. Sure, they look good when the market goes parabolic. Next month when vols decline you'll be cursing the long gamma/vol strategies.

What about a +dgamma strategy?

 

[riskarb]

Quote from yip1997:

What about a +dgamma strategy?

Simply refers to long wing strikes. You can be long gamma while short dgamma if short atm/itm strikes.

 

[RichardRimes]

operating on 6 hrs of sleep? Baby come yet?

 

[riskarb]

Quote from RichardRimes:

operating on 6 hrs of sleep? Baby come yet?

Woke to a nice surprise in FX so I am doing some online shopping. =)
Baby is imminent, but no labor. Steph was late with Griff as well.

Thanks Rich =)

 

[RichardRimes]

 

[dagnyt]

Quote from rdemyan:

Mark:

Didn't the diagonals fare better than an equivalent (or similar) vertical in this bullish nightmare?

Yes. Reduced loss, but loss just the same. For my comfort level, once the strike is breached, I believe it's necessary to close the position and accept a loss. Such losses are smaller for diagonals than for vetticals, but the size of the loss depends on two major factors:

a) VEGA. The higher the IV when closing, the less the loss

b) THETA. The more theta has been working (i.e., the more that time has passed), the less the loss.

I must confess that I sometimes hold out and don't close when the strike is breached during expiration week.

I had to close 5 different losing call spreads for the Oct expiration, but the profits from put diagonals plus profits from my spreads that expire in Dec essentially offset those losses and my account is currently just where it was when the expiration cycle began 5 weeks ago.

Mark

 

[El OchoCinco]

I think the cross month FLYs and diagonals can make money in any market environment depending on whether you are choosing puts or calls, it all comes down to strike selection and position management.

I think the cross month FLYs have elements of diagonals and verticals that I like but with limited risk and practically no haircut.

With the ES, EW and SPX cross month FLYs I have on, my haircut is currently just under $6,000. It goes without saying that the figure is not my max RIKS, just the margin requirement.

Quote from riskarb:

You're going from -gamma to +gamma. Sure, they look good when the market goes parabolic. Next month when vols decline you'll be cursing the long gamma/vol strategies.

 

[dagnyt]

Quote from rdemyan:

Coach:
...one normally has 5 or so points beyond the breach before breakeven is reached.

Really depends on how much time has passed. The more time, the better.

But VEGA also plays a role. If IV is high enough, then your long option really jumps in price and gives you more movement before B/E is reached. OTOH, an IV drop hurts.

Mark