500 contracts. But <1% chance of getting filled. $0.25 seems to be at the mid right now so I will just leave it there in case I get lucky.
SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Please help a newbie. I'm learning calendars, and just recently started on multi-month.
When there is a single month calendar, I know how to handle it, but please give me some ideas on how to handle multiple months. If the position is going bad, do you close out the entire position, flip the front month to the next month? Same question when it is going good -- how do you take profit? When you flip the front months?
I'm outta my league, here. Thanks in advance.
When there is a single month calendar, I know how to handle it, but please give me some ideas on how to handle multiple months. If the position is going bad, do you close out the entire position, flip the front month to the next month? Same question when it is going good -- how do you take profit? When you flip the front months?
I'm outta my league, here. Thanks in advance.
Boy, can I respond to this one :eek: The best advise is to close it to keep the loss minimal. My worst losses in calendars this past year were the one's I've tried to "save" by diagonalizing when I should not have. If the stock is stable and doesn't have very high vols you can sometimes do a diagonal which becomes a credit spread, however remember then you have other risks and can easily lose more money than the original debt.
Having said that...on multi month say 3-5 months you never know I would just keep rolling each month about 4-10 days prior to exp because the stock could easily come back to you over a period of several months, keep collecting the credits.
Anyone doing the remote market-making for options?
Since hedges for credit spreads are not perfect I try and do what I can to minimize the damage if the market moves against me and I need to adjust or get out.
So I would buy SPY puts/calls (b/a spread easier to get in and out of for the hedge) somewhere between the market and my short strike. For example, if I did get filled on the 1325/1330 put spread for January, I would maybe look at SPY 135 Puts as an initial line of defense.
I sue the word partial hedge to reinforce that that is all it is. A band aid to allow me to adust for a credit or to reduce the loss if I decide to get out.
The biggest benefit of partial hedges is that for the past year, everytime I put one on, the market moves away from my short strike and thus the Coach Phil Partial Hedge Contrarian Indicator has a near 100% record in market calls!
So I would buy SPY puts/calls (b/a spread easier to get in and out of for the hedge) somewhere between the market and my short strike. For example, if I did get filled on the 1325/1330 put spread for January, I would maybe look at SPY 135 Puts as an initial line of defense.
I sue the word partial hedge to reinforce that that is all it is. A band aid to allow me to adust for a credit or to reduce the loss if I decide to get out.
The biggest benefit of partial hedges is that for the past year, everytime I put one on, the market moves away from my short strike and thus the Coach Phil Partial Hedge Contrarian Indicator has a near 100% record in market calls!
Coach,
I know near the beginning of this journal you placed some partial hedges, I should probably go search for those threads again but since you're on the subject I seem to remember you actually placed a debit spread on SPY options instead of just buying the put options alone above the short strike. Would this be the strategy if you were filled on this recent put spread and if so, how many contracts would you take out on the SPY spread?
Another thing I noticed was looking at the S&P chart, back in I think it was April of 2000, the S&P rocketed up about 60 or 70 pts in just 2 or 3 days - this was kind of sobering - I assume in a situation like this it would be nearly impossible to get out without a loss but it got me thinking that maybe it would be prudent to always put some kind of partial hedge on. Maybe this has been discussed somewhere in this journal so I apologize if I'm on ground that has already been covered.
I know near the beginning of this journal you placed some partial hedges, I should probably go search for those threads again but since you're on the subject I seem to remember you actually placed a debit spread on SPY options instead of just buying the put options alone above the short strike. Would this be the strategy if you were filled on this recent put spread and if so, how many contracts would you take out on the SPY spread?
Another thing I noticed was looking at the S&P chart, back in I think it was April of 2000, the S&P rocketed up about 60 or 70 pts in just 2 or 3 days - this was kind of sobering - I assume in a situation like this it would be nearly impossible to get out without a loss but it got me thinking that maybe it would be prudent to always put some kind of partial hedge on. Maybe this has been discussed somewhere in this journal so I apologize if I'm on ground that has already been covered.
Sorry, I meant to say it would be impossible to get out without a loss if you had a bear call spread.
1. I place a debit spread instead of an outright call or put purchase for a partial hedge when the spread cost is around $0.10 and the long call or put I am looking at cost much more (in relative terms for me). Assuming a bull put credit spread, I can do maybe 300 of the bear put spreads and have a teeny lottery ticket if the market falls. I need to put the spread further away from my short strike than a long put hedge since I need the spread to get close to full value sooner rather than later.
However, it is preferred to simply go long puts in this situation to get the most bang for the buck and deltas. If I got filled on th 1325/1330 put spread I would probably look to going long 135 puts since I might be worried about January a bit. I have not looked at the prices of them yet but that is where I most likely would start.
2. There have been discussions on whether it is better to add a partial hedge when you had a higher sense of concern over the position or when the market started showing signs of maybe moving against you or always adding a partial hedge everytime you open a new position.
Always adding a partial hedge usually means that for or 9 months you gave away premium as the hedge was not needed. Sometimes you can go the whole year without needing the hedge and many feel that it would be just cutting into your returns prematurely and unnecessarily. Others may feel more comfortable putting it on regularly and even make some profits occasionally when the hedge increases in value but the short strike is not threatened.
I prefer to add hedges when I feel they are necessary. Of course, how will I always know when they are needed or not. I have to rely on my experience and skill in reading the market I guess when I think my strikes are more likely than not to be in some danger.
I think it is a personal choice.
However, it is preferred to simply go long puts in this situation to get the most bang for the buck and deltas. If I got filled on th 1325/1330 put spread I would probably look to going long 135 puts since I might be worried about January a bit. I have not looked at the prices of them yet but that is where I most likely would start.
2. There have been discussions on whether it is better to add a partial hedge when you had a higher sense of concern over the position or when the market started showing signs of maybe moving against you or always adding a partial hedge everytime you open a new position.
Always adding a partial hedge usually means that for or 9 months you gave away premium as the hedge was not needed. Sometimes you can go the whole year without needing the hedge and many feel that it would be just cutting into your returns prematurely and unnecessarily. Others may feel more comfortable putting it on regularly and even make some profits occasionally when the hedge increases in value but the short strike is not threatened.
I prefer to add hedges when I feel they are necessary. Of course, how will I always know when they are needed or not. I have to rely on my experience and skill in reading the market I guess when I think my strikes are more likely than not to be in some danger.
I think it is a personal choice.