SPX Credit Spread Trader

El OchoCinco · Oct 19, 2006

Typical Thinkorswim... I put an slightly agressive ask price on the Double Diagonal at $4.55 and got filled by them at $4.20....

Quote from optioncoach:

Test Trading the Following Diagonal:

BTO DEC SPX 1415 Call

STO NOV SPX 1395 Call

STO NOV SPX 1325 Put

BTO DEC SPX 1305 Put

Net Debit = $4.55 (Thinkorswim good fill with spread mid at $3.70 and natural ask at $5.50)

EDIT: Fill was at $4.20

Never did the double so I want to test it out with 1 at a cost of $455.00

ryank · Oct 19, 2006

Quote from optioncoach:

Typical Thinkorswim... I put an slightly agressive ask price on the Double Diagonal at $4.55 and got filled by them at $4.20....

Did you enter this as a DD in ToS or did you leg in?

El OchoCinco · Oct 19, 2006

Entered as a DD on ToS...

Quote from ryank:

Did you enter this as a DD in ToS or did you leg in?

ryank · Oct 19, 2006

Quote from optioncoach:

Entered as a DD on ToS...

I haven't tried doing it that way, I always enter one side at a time. I also am pretty aggressive with my orders, not going too far off the mid. Getting fills is a pain, may need to adopt your method for getting fills.

yip1997 · Oct 19, 2006

Quote from yip1997:

I have shorted 3 contracts of rut 760 put, and 8 contracts rut 760 calls from my DDs. Any suggestions to hedge against the set risk?

In case someone cares, I covered 760 put short for a debit of 0.3, and will take set risk for 760 call.

El OchoCinco · Oct 19, 2006

Well this was really ToS, I placed the order between the mid and ASK and got filled in about 30 seconds at a better price. You do not want to get too greedy shooting for the mid that you miss out on the position altogether...

Quote from ryank:

I haven't tried doing it that way, I always enter one side at a time. I also am pretty aggressive with my orders, not going too far off the mid. Getting fills is a pain, may need to adopt your method for getting fills.

dagnyt · Oct 19, 2006

Quote from yip1997:

In case someone cares, I covered 760 put short for a debit of 0.3, and will take set risk for 760 call.

I care. Why not just cover all of it by closing call spread?

Mark

ryank · Oct 19, 2006

I'm doing some rough modeling of a debit DD and a credit DD (using wider strikes) both with the same short strike. From what I am seeing the credit DD more or less out performs the debit DD even when past the long strike.

Here is what I modeled, play with it and see if I'm off with something (I used mid prices and I used less contracts for the credit dd to keep the amount at risk roughly equal):

debit dd
STO 10 nov 1325p
BTO 10 dec 1300p
debit= $1.75

STO 10 nov 1400c
BTO 10 dec1425c
debit= $.70

credit dd
STO 5 nov 1325p
BTO 5 dec 1275p
credit= $.25

STO 5 nov 1400c
BTO 5 dec 1435c
credit= $1.10

I then looked to see what happened if the market was at 1300 next Friday and what happened if it was at 1425 next Friday. Try it out and tell me if you find the same thing, the credit DD outperforms at 1300 (less loss), in between the short strikes (more profit) and at 1425 (less loss).

riskarb · Oct 19, 2006

Quote from yip1997:

There is no simple strategy for long dgamma and short gamma, but a complex combo might do?!

I can also short gamma and take the gamma risk for a short period of time, and establish long dgamma when certain risk level is reached. Gamma doesn't increase much in the beginning, and if you can establish long dgamma before close to expiration, you have reduced your risk significantly. Is that true?

I appreciate your comments as usual before I risk my real money.

Dgamma isn't really something you want to strive to be long, unless you're intent on scalping long gamma with spot. It would allow you to hedge somewhat weakly into your dgamma exposure.

There is no single-ticker strategy. I didn't mention simple. You can be long dgamma and short gamma, but it involves correlation risk in a replication trade; i.e., long ym, short nq.

yip1997 · Oct 19, 2006

Quote from dagnyt:

I care. Why not just cover all of it by closing call spread?

Mark

The price i paid for closing put is only 0.3, and the extra price (time premium) for closing call is around 0.9. Assuming rut opens the same as today's close (mostly likely outcome), I lost a lot more when closing the call. If rut opens 1 point higher, I won't lose much by not closing the call.

It seems that there is a positive expectancy by not closing both, (I didn't really compute the prob) esp when one loss is offset by another gain (even they are not balanced). So the right decision IMO is to not close in a normal situation. However, I made the decision to free up some of my margin and sold nov 740 put today. The weekend time decay will offset the 0.3 premium.

I appreciate any discussion on this matter.