SPX Credit Spread Trader

IV_Trader · Nov 10, 2006

Quote from yip1997:

If we look for the "best" strategy, not to learn a better risk management, we won't survive long.

can you give one practical example of " risk management" or possible "adjustment" when trade goes against you ?

dagnyt · Nov 10, 2006

Quote from optioncoach:

I never got a good fill on any OTM puts for NOV ... I might miss out on a DEC position if this keeps up.

This begs the question: Are strike selection coupled with sufficient premium to compensate for risk vital?

Or is it better to be 'in' with the best that's available?

I prefer to get the best combination of strikes and credits I can get - and be invested. Comments?

Mark

yip1997 · Nov 10, 2006

Quote from IV_Trader:

can you give one practical example of " risk management" or possible "adjustment" when trade goes against you ?

I can't give you a concrete example. It depends on how the trade went against you. The episode, your market outlook, your leverage and your risk tolerance will determine your appropriate actions.

Let me tell you why I think they are important instead. When I worked with the strategists in GS, they asked me a question regarding graph theory. To make the long story short. I think (to be honest, I am not sure) the idea is to apply graph theory to generate a risk graph. Using the risk graph (the traders even myself as a developer might not know that it is a risk graph) generated by the software, the traders manage their books.

I think I am a better option trader now than before after I changed my direction from trading strategies to dynamic leveraging with risk control. I am not sure though. I am still new to my new approach. Time will tell.

Maverick74 · Nov 10, 2006

Quote from rdemyan:

Mav:

Could you elaborate more, please. I know that these FOTM credit spreads are, to put it mildly, not your cup of tea. Yet you say you make most of your profits by selling premium, but not ATM. So are you selling slightly CTM or ITM or is it primarily your so called X-mas tree strategy. Or are you selling primarily naked premium.

Also, I've forgotten what exactly is meant by curvature. Would you refresh my memory please.

Thanks.

Curvature refers to slope (gamma). Whenever a trader is long options at a certain strike, they say they have curvature at that strike. I sell options against my curvature. In other words, the curvature gives me the opportunity with little or no haircut to sell premium at my choosing. I don't sell DOTM options unless they are back month options in which I will sell very DOTM options. If I am selling front month options its usually after the market has made a move closer to my wings. I would never sell a .30 option or a .30 spread. I want to sell dollars, not pennies.

I NEVER sell naked premium. NEVER! Bad traders sell naked premium to compensate for their poor trading ability. A good trader can always build a good position.

You can't give my strategy a name or put it in a neat little box. I am both long gamma and short gamma and both long vol and short but at different times. When I made directional bets it's usually with back month options to get a harder delta. A lot of the trades depend on where vol is at and how steep the skew is.

El OchoCinco · Nov 10, 2006

With credit spreads I would rather not chase premium just to get in as that often leads to me being closer to the money than I would like. I do not mind missing a month if the premiums are not what I would like at the strikes I am looking at. for other strategies you can work with what you are being given but with FOTM credit spreads, I would rather not push the strikes if I do not have to.

Quote from dagnyt:

This begs the question: Are strike selection coupled with sufficient premium to compensate for risk vital?

Or is it better to be 'in' with the best that's available?

I prefer to get the best combination of strikes and credits I can get - and be invested. Comments?

Mark

IV_Trader · Nov 10, 2006

Quote from Maverick74:

Curvature refers to slope (gamma). Whenever a trader is long options at a certain strike, they say they have curvature at that strike. I sell options against my curvature. In other words, the curvature gives me the opportunity with little or no haircut to sell premium at my choosing. I don't sell DOTM options unless they are back month options in which I will sell very DOTM options. If I am selling front month options its usually after the market has made a move closer to my wings. I would never sell a .30 option or a .30 spread. I want to sell dollars, not pennies.

I NEVER sell naked premium. NEVER! Bad traders sell naked premium to compensate for their poor trading ability. A good trader can always build a good position.

You can't give my strategy a name or put it in a neat little box. I am both long gamma and short gamma and both long vol and short but at different times. When I made directional bets it's usually with back month options to get a harder delta. A lot of the trades depend on where vol is at and how steep the skew is.

buying back month wings first and then (with price change) selling front month ATM ? Am I close ?

Maverick74 · Nov 10, 2006

Quote from IV_Trader:

buying back month wings first and then (with price change) selling front month ATM ? Am I close ?

I never sell ATM options (hard deltas). I don't want to say too much because then someone will say, "oh yeah, I see what he is doing". And the thing is, you don't see what I'm doing because it's not that easy to explain. So you won't have much success trying to reverse engineer it.

Edit: I should not say never sell ATM. If I can sell the ATM's for no risk, I will. I will always take a hard delta bet for free.

rallymode · Nov 10, 2006

Mav, are you trying to confuse the average reader on this thread? There aren't any secrets in running an options book month to month.

Cache Landing · Nov 10, 2006

Nice double top on SPX.

IV_Trader · Nov 10, 2006

Quote from Maverick74:

I never sell ATM options (hard deltas). I don't want to say too much because then someone will say, "oh yeah, I see what he is doing". And the thing is, you don't see what I'm doing because it's not that easy to explain. So you won't have much success trying to reverse engineer it.

How can one reverse engineer someone's else strategy without knowing directional/vols bias ? Unless you invented all neutral , works_under_any_condition position... And if you did , good for you , Mav