SPX Credit Spread Trader

[El OchoCinco]

CLOSED

SPX CREDIT SPREAD POSITION

SOLD 400 OCT SPX 1385/1390 Put Spreads @ $0.30

Net Credit = $12,000

Max Risk = $188,000

Partial hedge given the shorter distance OTM:

Long 100 OCT SPY 138 Calls @ $0.20 or $2,000


COMBINED NET CREDIT = $10,000

Combined Net Return = 5.26%

 

[daxhunter]

I hope OC continues to post here, especially in light of his move to rational spreads. =) These "cross flies" look great if you're not paying top-decile vol.

 

[rdemyan]

I'd like opinions on the use of MA crossovers for the SPX. If useful, which MAs make sense (i.e. 50day/9day)

 

[rdemyan]

Coach, do you have any response to my question on the use of MA crossovers on the SPX?

 

[El OchoCinco]

MA crossovers lag market action but for a conservative approach to entry and exit in a position they can be used with some success with other indicators. Try a 20/40 EMA and backtrest cross overs. Add a 10day EMA for a 3rd line and use Bollinger bands as well.

Nothing fool proof or 100% but if you use 3 MA cross overs and BBs you might find some patterns/signals you like.

Quote from rdemyan:

Coach, do you have any response to my question on the use of MA crossovers on the SPX?

 

[Magna]

A few points, first being that the SPX thread is the wrong place to be discussing this. Most people here, for lack of knowledge of the total situation, don't understand what went down. Riskarb was not banned for his crass and abusive posts, although he was warned to cease and desist. I'll repeat that, it was NOT for his public posts directed at Heatheranderson, so all the comments regarding that have been removed. It was for something else that Riskarb does, and can't seem to help himself, as he's done it before (and been banned before). So let's please return to our regularly scheduled thread for those who can set this nonsense aside and get back to trading. Thanks.

 

[El OchoCinco]

Nov is too close for a good SPX call spread since vols are so low and calls are skewed.

DEC is 52 days out and too far off for right now.

I do have a 1300/1320 bull put spread on ES options for November with a 5% return open and todays up move is a nice push away from it. Even if we have a nice correction, I do not see the futures getting below 1325 by NOV expiration.

 

[El OchoCinco]

Interested to see how this develops if the ES can keep moving to 1400 ......

Quote from optioncoach:

Bullish Bias Cross Fly


STO 25 NOV ES 1405 Calls @ 3.05

BTO 50 NOV EW 1405 Calls @ 5.50

STO 25 DEC EW 1420 Calls @ 10.00

Net Credit = $2,562.50

I have a bullish bias in the Futures going into NOV expiration with ES currently at 1372 or so. The DEC EW are 15 points higher to compensate for the fact that by then the DEC futures contract will have expired and MAR will be in play at a 10 point premium.

 

[blk]

Quote from optioncoach:

Nov is too close for a good SPX call spread since vols are so low and calls are skewed.

Dear Coach,

Can you please explain what causes the calls to be skewed? Is the market telling us something through these skews?

Thank you.

 

[El OchoCinco]

The quick and dirty answer is that the index options are skewed such that OTM calls have lower IV than the ATM calls and OTM puts have lower IV than the ATM puts.

For puts it is a result of market crashes in the past. Large institutions and traders purchase OTM puts as insurance on large stock portfolios and market makers know that these OTM puts always have buying demand due to fear of a crash which could happen at anytime. This buying bias pushes prices up and skews the vols in the OTM puts.

Large players also sell covered calls against their stock portfolios for added income and slight hegde protection. This selling bias pushes OTM call prices down and skews vols lower.

This is the vanilla reason and these skews will always be there and are not really telling us anything but reflect a current behaviour in the market. if the OTM calls moved up in price, then more people would sell them against their stock portfolios, pushing them backlower. If OTM puts got relatively cheaper, then more players would buy up the cheap OTM insurance, pushing the prices back higher. So the market keeps the skew in place.

Quote from blk:

Dear Coach,

Can you please explain what causes the calls to be skewed? Is the market telling us something through these skews?

Thank you.