SPX Credit Spread Trader

[blk]

Quote from optioncoach:

FLYs are cool! Mine is just a combination of short and long calendars. One of the automatic and unfortunate applications of Reg T is that the back months are treated as naked if short, as in a short calendar.

QUOTE]Quote from MTE:

What's the problem with flys in a retail account?

[/QUOTE]

Although I dont understand haircut, I shall try to explain why it is treated as "naked" in Reg T.

You have a short back-month call or put. Although it is "covered" (ie. not "naked") till the middle month expiration, the broker (who uses Reg T) cant assume you will have enough cash (for margining) or will adjust to cover the naked option, when it is due i.e. after middle month expiration.

So that's why they margin it as "naked" from the beginning. Hope this helps some of the new players here.

 

[Sailing]

Yes, we do have some 2-month and 4-month diagonal positions. We like these especially in the RUT... very nice longer term premium available.

M~

Quote from Eric99:

Murray,

I see you use 1 month difference on your diagonals. Would you ever do them with 2 months, ie., looking for the roll opportunity? Especially in order to pick up more vega in low IV environments (now?).

The tradeoff is being able to buy fewer longs OR having to buy them further out, thus taking more delta/gamma risk on the upside.

Best,

 

[LeonPhelps]

What's the prob with time flies using futures options? Thought Reg T does not apply.

 

[El OchoCinco]

The underlying is not the same. Right now the NOV/DEC trade off the DEC future but the JAN cycle trades off the MAR future. As I found out it messes up the striaghtforward calculation.

I put one one recently and simply pushed the DEC EW out 15 points further OTM to hopefully offset the jump in premium from DEC to MAR but it makes modelling that much more difficult. I think it is easier to do when all 3 months are priced off the same underlying future.

Quote from LeonPhelps:

What's the prob with time flies using futures options? Thought Reg T does not apply.

 

[momoneythansens]

Quote from LeonPhelps:

What's the prob with time flies using futures options? Thought Reg T does not apply.

Nothing. Though, time flies (straddle strangle swaps) are not the same as calendar flies (cross month flies).

 

[Heatheranderson]

Coach
can you tell how much is the haircut margin for this position.I am testing it out in virtual trading.

 

[iprph90]

cache commented a couple of weeks ago that the dumb money was entering the market (spx ~1350)...well that money looks pretty smart today. ok, how about a poll: really dumb money coming in now, or a short squeeze?

 

[momoneythansens]

Quote from iprph90:

cache commented a couple of weeks ago that the dumb money was entering the market (spx ~1350)...well that money looks pretty smart today. ok, how about a poll: really dumb money coming in now, or a short squeeze?

Plenty of other crystal ball threads for your entertainment:

http://www.elitetrader.com/vb/showthread.php?threadid=79530
http://www.elitetrader.com/vb/showthread.php?threadid=79486
http://www.elitetrader.com/vb/showthread.php?s=&threadid=78067
http://www.elitetrader.com/vb/showthread.php?s=&threadid=78502

 

[Cache Landing]

Quote from iprph90:

cache commented a couple of weeks ago that the dumb money was entering the market (spx ~1350)...well that money looks pretty smart today. ok, how about a poll: really dumb money coming in now, or a short squeeze?

Quote from Cache Landing:

Just something to think about. It's interesting when looking at the charts that the last time SPX was higher than this was during the tech bubble, which everyone considers idiotic in retrospect.

I think it is still relatively safe to say that we are in the "dumb money" stage of this rally.

Nope this isn't the "really dumb money" stage yet. But we are definitely seeing an infusion of dumb money. I can't go a day without someone asking me which stock or fund they should put their money into, because they heard the market is hot right now. These are people that generally wouldn't be able to tell you what the conditions in the market are. That is a dead giveaway of a dumb money rally. Couple it with a thanksgiving rally and you have high flying markets. Given the recent market action I now wouldn't be surprised to see the growth rate accelerate through NOV.

It should be noted that the dumb money stage should last for quite some time, not just a couple weeks. Your average Schmoe isn't quick enough to act in a couple weeks. That money will be pouring in for the next few months. (along with a shift of money from real estate to stock markets). By the end of JAN however, I think institutions will be more than happy to take the other side of all the buyers clamouring to get in and we should see a much slower advance. If that is the case, look out in APR/MAY cause the market is gonna get really choppy.

 

[LeonPhelps]

Quote from momoneythansens:

Nothing. Though, time flies (straddle strangle swaps) are not the same as calendar flies (cross month flies).

OK, point is you dont use reg T