SPX Credit Spread Trader

[jeffm]

I had both naked calls and credit spreads on ER2 (RUT futs). My only ES calls were in an OCT1375/NOV1400 diagonal. Unfortunately, the ES diag was a small position, since ES closed today at 1375

On ER2, I had Oct call shorts (some naked, some spread) at 760, 770 and 775. Most were entered in mid to late Sept. After the big up day near the first of the month, the market looked too strong for my taste. I started scaling out of the calls anytime I could take them off near b/e. I got about 80% of my position closed. My final batch of 770 calls were closed last week for a loss of 3 points each. The call loss was about equal to the gain on my puts, which was itself a smaller than normal position since the market never dropped enough for me to enter at what I considered a good level.

Of course, ER2 closed today below 770. And if I let that fact impact my decision making in the future, I deserve the additional losses I will take using the "hold and pray" method of risk control

Quote from rdemyan:

Jeff:

Are you still selling naked options on S&P futures? If so, would you mind sharing how they did on the call side this month?

Thanks.

 

[El OchoCinco]

I am trying to type fast so credits/debits are intertwined lol.... Also long day of writing and baby. Also, I put this on as a fun test of the cross Flys and an expectation of a large GOOG move to help me and would not think of using it in this way consistently.

It was a directional bet for me so that is all I really cared about in all honesty for GOOG. Lazy on my part no doubt. Were 3 other strategies a better way to play it? I am quite sure. But I wanted to test this one even if it was a bet. So to be fair I really did not model it in detail for a non-move in the middle, I just put it on the risk graph to see the profit at the ends at OCT expriat. If the $2,250 gain was pure luck then I am fine with that .

With OptionVue I can model it better than with ToS.

Again it was a fun bet and I should have not even mentioned it because it led to a discussion off tangent from its use on the SPX where we are not dealing with the same IV crush and where I really intend to use it. For SPX, that is less of an issue. Even with a slightl skew the IV differences have not shown up as significant yet.

Anyway, thanks for all the input guys and I will be more controlled in the future. My fun trades create way too many tangents on this thread and it takes a lot to find the actual trades on SPX buried in all t his lol. (except for Mo, he can find anything)

Sorry guys!


EDIT: here is the actual prices from TOS to close both Flies if GOOG went nowhere using the strikes you suggsted. Assuming ToS is correct it would have been a tiny debit to close out and still small harm. So $4.50 profit and if it went nowwhere about $2.00 loss. If ToS is right, not bad R/R overall even with the IV crush. Assuming ToS has it right in the pricing.:

Quote from rallymode:

Even? I dont think so, this was no arb Phil.

.

 

[rallymode]

Quote from optioncoach:


Again it was a fun bet and I should have not even mentioned it because it led to a discussion off tangent from its use on the SPX where we are not dealing with the same IV crush and where I really intend to use it. For SPX, that is less of an issue. Even with a slightl skew the IV differences have not shown up as significant yet.

Anyway, thanks for all the input guys and I will be more controlled in the future. My fun trades create way too many tangents on this thread and it takes a lot to find the actual trades on SPX buried in all t his lol. (except for Mo, he can find anything)

Phil, you shouldnt change your ways just because of what transpired today. We are all adults here and last time i checked this was your thread so post whatever trades you want. Maybe it's me but today was actually quite entertaining

Truth be told, i actually like the cross month fly on the ES/EW. In my opinion, it will outperform the FOTM verticals or diagonals over a large sample if you find a reliable way to select strikes. Should certainly make for better sleep at night and more quality time with your family. I am a big fan of muted bets so keep us posted on your ES/EW cross month flies.

 

[andysmith]

rdemyan, my 2 cents in response to your three points in reverse order since that's how I see their importance:

3) I'm certain that your performance will improve dramatically once you grasp technical analysis. It's been posted here that to make these trades work, you have to be right on direction or volatility. THe TOS probability play may work for CTM credit spreads but for ultra low R/R like these far OTM spreads, you've got to understand TA.

2) I never roll up my endangered call spread into the same month. I offset, and if I roll, it's to the next month.

1) I think your fear of black swans are killing your trading. Remember, over the years, the US markets have a clear upward bias and you're esentially riding against the tide by focusing exclusively on call spreads.

I hope you don't give up on credit spreads. Just try and improve your approach. And oh, use some of the credit to put some hedges on -- not when you need them (that's too late) but when you put on the spread itself.

Quote from rdemyan:

As part of the Coach/Dr. Phil show:

Here's my list of things learned this month (regarding FOTM credit spreads only the other list is too long)

1) I've given up the bear call only strategy. I will now be adding put diagonals to my strategy when appropriate. I looked at the losses I've taken over the last two years and everyone has been on my bear calls; not one on the bull puts. There was one loss that was precipitated by adjusting a bull put but that bull put never really was breached. The adjusted bear call though was. Despite my black swan fears, my strategy has just not been supported by the facts. So it's time to change. I'll probably still do less put contracts, but I will be adding them.

2) My strategy in the past had been to offset and end it at that. This month after offsetting I decided to open new positions (as part of the adjustment). Stepped out in front of the train again. As I look at the months where I've lost money, I've consistently done much better (read: lost less) when I offset only and move on to the next month; as opposed to offsetting and opening a new position 5 to 10 points further OTM in the same month. Coach seems to be successful at this but I'm not. Perhaps it's related to item 3)

3) I'm going to take the time to learn technical analysis and will be adding it to the timing of my positions. It's no panacea and I think I can safely say that the vast majority of technical analysts got caught with their pants down this month; but still I believe it needs to be part of my learning process.

Finally, does anyone know of a simple book that discusses the greeks. I'd like something that provides a lot of examples. Something other than Cottle.

Thanks.

 

[rdemyan]

Thanks, Andy:

I agree with all your points and am planning to add hedges early.

The only difference at this point is that I'm becoming more partial to the diagonals on the put side as opposed to verticals.

We'll see how it goes.

EDIT: Good to see you posting again.

Quote from andysmith:

rdemyan, my 2 cents in response to your three points in reverse order since that's how I see their importance:

3) I'm certain that your performance will improve dramatically once you grasp technical analysis. It's been posted here that to make these trades work, you have to be right on direction or volatility. THe TOS probability play may work for CTM credit spreads but for ultra low R/R like these far OTM spreads, you've got to understand TA.

2) I never roll up my endangered call spread into the same month. I offset, and if I roll, it's to the next month.

1) I think your fear of black swans are killing your trading. Remember, over the years, the US markets have a clear upward bias and you're esentially riding against the tide by focusing exclusively on call spreads.

I hope you don't give up on credit spreads. Just try and improve your approach. And oh, use some of the credit to put some hedges on -- not when you need them (that's too late) but when you put on the spread itself.

 

[dagnyt]

Quote from jeffm:

When you say "2% of margin requirement", are you using the spread width as an estimate of the margin? I.e. if you are looking at a 50 pt SPX spread, you would want a minimum 1pt (2%) credit?

Yes.

How far OTM would you say your typical put and call are (referring to the short strikes)?

That really depenes on how much time there is to expiration. IV also plays a role. The more time, the further OTM I can go.

The last time I sold an NDX call spread, the index was about 1680 and I sold the 1800 call.

Yesterday, with 4 weeks to go, I sold the SPX Nov 1325 put - about 40 points (3%) OTM.

Yesterday, with 8 weeks to go, I sold RUT Dec 700 put, over 60 points (8.5%) OTM.

 

[rdemyan]

Mark:

Diagonals or verticals on the recent trades?

Quote from dagnyt:

 

[yip1997]

Quote from dagnyt:

You have 2 intelligent choices:

a) Close Thursday afternoon

b) Sell out your longs immediately after the market opens Fri morning. If your broker will not let you make this sale, then get a new broker.

Mark

Since I paid my tuition yesterday, I am trying to learn a lot from it.

I don't want to lose the big 1-day time premium for closing earlier. Can I do something like this:

1. Buy the same # of contracts for the corresponding future at Friday's open (assuming open price is very close to set)
2. Sell the future and your long leg at the same time on Monday.

The margin requirement for future is very low, and it only requires me to reserve a very small amount of capital.

Can anyone see a big risk for this approach? (I understand the open and the set prices might be different, but i assume the difference should be small on average.)

 

[yip1997]

Quote from dagnyt:

Yesterday, with 4 weeks to go, I sold the SPX Nov 1325 put - about 40 points (3%) OTM.

Yesterday, with 8 weeks to go, I sold RUT Dec 700 put, over 60 points (8.5%) OTM.

Mark,

Do you have a long leg with each short? Does your selection of short strikes depend on your long strike too?

 

[El OchoCinco]

Rally:

What would have happened to your double calendar if GOOG stayed flat and IV dropped? I think you said you sold it for $14 and it was worth $9 after the news and move. Since it was a credit spread combo, do you have an idea what the cost to close would have been.

It seems an interesting way to play any pumped up IV stock with news expected but curious as to your experience on the risk side.

Quote from rallymode:

Phil, you shouldnt change your ways just because of what transpired today. We are all adults here and last time i checked this was your thread so post whatever trades you want. Maybe it's me but today was actually quite entertaining

Truth be told, i actually like the cross month fly on the ES/EW. In my opinion, it will outperform the FOTM verticals or diagonals over a large sample if you find a reliable way to select strikes. Should certainly make for better sleep at night and more quality time with your family. I am a big fan of muted bets so keep us posted on your ES/EW cross month flies.