SPX Credit Spread Trader

[dagnyt]

Quote from yip1997:

Mark,

You was a MM and familiar with haircut. Why do you trade retail under reg-T and not prop with haircut now?

Good question.

1) Commissions are so cheap (75 cents per option) that I don't need the lower costs of the prop shop.

2) Haircut would allow me to be more efficient with capital. But it also allows larger positions and hence, more risk. I don't want an excuse to carry larger positions.

There is one very good reason for having MM haircut, but I have not made any effort in that direction: I would own some black swan protection in the form put backspreads. I cannot afford to carry them in my retail account. Call backspreads are much cheaper to carry.

(To answer the inevitable question: Diagonal call backspreads can be done with strikes 30 points apart in RUT. That means a single 3 x 2 spread requires margin of 6k. For puts - because I want to collect a cash credit - the strikes are 60 points apart - and a simple 3 x 2 carries a margin requiremnt of 12k. That ties up too much cash to gain only one net put.)

Mark

 

[yip1997]

Mark,

Thanks for your explanation.

 

[TrendSailor]

Quote from der_kommissar:

Don't worry, you'll give it all back in short order rookie.

Let me guess - yet another dopple for just another spiteful "grinch"?

BTW: I am now 100% out and ahead with a net over 25% on this transient position and will go back in on the next low. Money is going to be rushing in Monday or are you a technical analysts who is predicting a mad rush to T-bills at under 4.45% hahaha! Guess where the bond money and foreign money are now headed? Hint - it ain't the safety of yields under the real inflation rate...

TS

 

[der_kommissar]

Quote from TrendSailor:

Let me guess - yet another dopple for just another spiteful "grinch"?

BTW: I am now 100% out and ahead with a net over 25% on this transient position and will go back in on the next low. Money is going to be rushing in Monday or are you a technical analysts who is predicting a mad rush to T-bills at under 4.45% hahaha! Guess where the bond money and foreign money are now headed? Hint - it ain't the safety of yields under the real inflation rate...

TS

Nah, I just know your an inexperienced bullshit artist. Guys like you come and go all the time. Emotionally euphoric on your wins and despondent on your losses. You've left your little trail all over this thread.

 

[dagnyt]

Quote from TrendSailor:



I am now 100% out and ahead with a net over 25% on this transient position

TS

Serious question: Why would anyone care?

You bought some calls and you won. So what?

That is not the topic of this board. Boast elsewhere.

Mark

 

[rdemyan]

Coach:

Have you had the time to do anymore analysis on this? The initial premise of perhaps being able to increase the R/R is appealing. Or is this a dead end?

Quote from optioncoach:

By the way, it may not have been clear that what I was doing was summarizing what was said in the article and exploring the comparison. Did not say I was going to do these or switch everything over to them. When two positions are synthetic equivalents often there realistic differences (spreads on the options) or personal advantages of choosing one over the other (i.e. covered calls v. naked puts).

 

[El OchoCinco]

Well the SPX is definitely out since ITM options widen the already "bend-me-over" spreads.

One advantage I like is that I can earn interest on the cash deposited in the prop using the ITM options for the Iron Condor but I still want to see what they look like on XEO. They seem appealing on XEO in some comparisons I made.

People have to remember that they are synthetically equivalent in the risk graph perhaps but not equivalent in real practice and that is what I am testing. After all why are some people here arguing that one should be used over the other or that naked puts might be better to use than covered calls. Cause in practice they have different margin requirements and potential adjustment steps. The article never touched upon these specifics except for the interest earned so I want to see what else they have different and in common.

Quote from rdemyan:

Coach:

Have you had the time to do anymore analysis on this? The initial premise of perhaps being able to increase the R/R is appealing. Or is this a dead end?

 

[uglyboy]

One of the things that interested me in this thread was the (semi) numerate discussions and the relative lack of boasting one one hand and abuse on the other. It's a bit sad that this thread is starting to degenerate. Perhaps now that there is a bit more volatility, it may be possible to get back to the OPs original aim- the discussion of credit spreads and related strategies.

In this spirit, I present a diagram that I've marked up, showing the theoretical distribution of prices assumed by the Black Scholes model and Merton's derivation (which is the basis of the theoretical value software you are all using - you are calculating theoretical values right?) Overlaid is a histogram of actual price distributions. This actual distribution is, as you all know, leptokurtotic. Notice that there is a significant difference in the frquency of events at 0, 1 and >2 sigma in real data as compared to that predicted by a logarithmic distro.

So here is a question for the newbies:
1) What does this imply about where you should be buying/selling options in your spreads?

2) Here's a question for the not-newbies: If this is true, why am I telling a bunch of strangers?

Ugly

 

[yip1997]

Hi everyone,

Did anyone use the average profit per contract as a measure of his performance?

I used all my past history and did the analysis. I made a little bit less than $10 per contract. It means if I paid an extra of 10 cents for each contract, I would have lost money.

The data scares me as 10 cents is the bid ask spread. If I used market order instead of limit order, I would have lost money.

I really want to quantify my success before I take more risk. Any suggestions?

 

[cohenmichaela]

Quote from uglyboy:

So here is a question for the newbies:
1) What does this imply about where you should be buying/selling options in your spreads?

Of course being aware of theoretical vs. practical distributions is important but answering this question without context (skew, strategy, goals, etc...) is a bit short sighted.

2) Here's a question for the not-newbies: If this is true, why am I telling a bunch of strangers?

Ugly

Perhaps you enjoy listening (reading) your own words?