SPX Credit Spread Trader

[domestic]

Quote from segv:

That is quite a theory yip1997, but the naked premium writer phenomena is easily explained by randomness. Take a large universe of naked premium writers and then remove the population with negative returns. The strategy will appear superb based on the returns of the remaining population.

-segv

agreed, i consider myself lucky for the great year and am no longer in the naked population....

back to spreads with future options.

besides my open credits spread positions i have some put backspreads to show for comments. these are er2, but can be compared to spx backspreading to stay on topic.

long 20 jan 720

short 10 feb 710

debit $288

I initiated these to protect some much lower credit spreads.

 

[yip1997]

Quote from rallymode:

I concur and was just about to ask for an example of a real statistical edge. In my opinion, statistics or models used cannot be a real edge.

RM and segv,

Do you think the sun will rise from east tomorrow? You have confidence in it because of the experience or "statistics". You have the model of science to describe the physical world but they all infer from the "past". Do you think it is real? Yes, you do.

Nobody knows the future. Period. But most of the time, we believe in statistics and we believe history repeat by itself, and so we study the past to gain insights for the future.

I never said we have a "real" edge. I said "statistical" edge instead. I certainly will use "statistical" edge as my "perceived" edge, as i did in all my life.

 

[yip1997]

Quote from segv:

yes there is absolutely a position that profits from the difference between these distributions, its called "short the atm long the wings"! Again nothing new or revolutionary.


It is new to newbie like me. Thank you segv.


Finally, I really got a chuckle out of the article uglyboy posted, where the gentleman from OptionVue went to the trouble of back-testing selling ATM combos and buying wings at 1 standard deviation over 5 years. He found that 65% of the positions were profitable. I mean, what were the chances of that happening, say about 68%?


Did they mention the average return?

 

[rallymode]

Quote from yip1997:


I never said we have a "real" edge. I said "statistical" edge instead. I certainly will use "statistical" edge as my "perceived" edge, as i did in all my life.

This is not what you said before so i thought i'd ask.

Quote from yip1997:

The statistical edge works only if you survive long enough. Blowing up means "one shot". You can't survive long enough to find your "statistical" edge.

You really don't know if you have a real "statistical" edge or just a "perceived" edge. Always give yourself some margin of error.

...but i agree with using stats as a perceived edge in some cases.

 

[rdemyan]

Coach:

What's your take on the market through December? Also, are you starting to look at January spreads?

 

[dagnyt]

Quote from rdemyan:

Coach:

What's your take on the market through December? Also, are you starting to look at January spreads?

I know you askad Coach, but I thought that I would chime in: I have already closed all my Decemeber positions and a large portion of my Januarys. Most of my portfolio consists of Mar/Feb diagonals.

Mark

 

[El OchoCinco]

Pretty crappy environment for SPX spreads in my opinion. With VIX so low, OTM calls are trading near 8% vols at the strikes I would be comfortable with and thus no premium and we have not had any significant dips for me to grab put at strikes I feel comfortable with. So for right now I am on the sidelines with respect to SPX spreads. January only has another week or so left before time left to expiration shrinks those premiums away as well lol...

Quote from rdemyan:

Coach:

What's your take on the market through December? Also, are you starting to look at January spreads?

 

[yip1997]

Quote from dagnyt:

I know you askad Coach, but I thought that I would chime in: I have already closed all my Decemeber positions and a large portion of my Januarys. Most of my portfolio consists of Mar/Feb diagonals.

Mark

Mark,

Can you tell us the reasons why you closed Feb/Jan diagonals so early?

[edit] I don't think the index has moved to your short strike locations, your usual exit points.

 

[TrendSailor]

Quote from optioncoach:

Pretty crappy environment for SPX spreads in my opinion. With VIX so low, OTM calls are trading near 8% vols at the strikes I would be comfortable with and thus no premium and we have not had any significant dips for me to grab put at strikes I feel comfortable with. So for right now I am on the sidelines with respect to SPX spreads. January only has another week or so left before time left to expiration shrinks those premiums away as well lol...

I agree.

I was tempted to put on some more Dec 1440/1450 SPX Call Credit spreads on the little run up around 11:30-12:00 since credits improved and VIX came up a bit. But remaining time is too discounted now and its just "not worth it" except to those putting on hedges. Its probably better for me anyway since the upside is still a bit too spooky for my credit writing tastes - me thinks this bull still wants to run into 2007.

There was a huge spike up around 10:20 on 4.6 million volume. Anyone know what that was about? I think there is real uncompensated risk exposure to these kinds of up spikes as large hedges and institutional/mutual funds start recalibrating their portfolios for 2007 to suck up a lot of liquidity/cash.

I am sitting very pretty and feeling comfy on waht is now a fairly large block of PUT DEC spreads that are now about 65-70 points out of the money. Don't ask me how, but on that I managed to get a very descent credit (relative to VIX) on an early run down just before the start of the front month.

But I wish I could close out the few of my nearer the money Calls that trading volume and IV herded me into (greed) early into the front month. Fortunately some of that risk has already been nicely compensated for with a lucky block of cheap lotto tickets I picked up in the run down to the 1395 area. That was just intended to be "fun" while waiting for more favorable credit premiums. I pulled the trigger when my period technicals ( beginner's luck ) predicted a fair shot at a strong bounce and the price was right.

But now trading vol is too thin at my few CALL side short strikes and I am a bit upside down in those. I'd like to back out of them. as I won't be able to baby sit them through expiration due to an upcoming ski trip out of country. The SPX up gapping is causing me some anxiety. Sigh...

TS

 

[dagnyt]

Quote from yip1997:

Mark,

Can you tell us the reasons why you closed Feb/Jan diagonals so early?

[edit] I don't think the index has moved to your short strike locations, your usual exit points.

I closed a bunch of diagonal put spreads (my call positions are all ok, because I own some extra calls) for two reasons: One the profit was good enough to tempt me. But, more importantly, the market was running away from the strikes.

I open these spread for a credit. As time passes and if the market does not run towards the strikes (too quickly) then the spread revalues and enables me to close for another cash credit. That's the good news.

But, that cash credit can dwindle when the market rallies because the position's delta moves from positive to negative and because IV decreases. One way to protect the available credit is to grab it before it disappears. That's what I do.

Obviously by giving up the spread, I can no longer earn a much larger profit. But, I prefer to take whan I have now and open a new position in a futher out month. Thus, I am opening new positions in Mar/Feb. And these new positions are (for the moment) all call spreads. I had too many put spreads for comfort and I'm taking this opportunity to remove some downside risk from my portolio. I am not concerned with upside risk as I own extra calls.

Mark