Thanks Coach, appreciate you taking the time to answer a newbies questions.
SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Actually when I feel the fear I run and hide in the corner like a girlie man....
Hi Mark. Glad to see you're still around
I have a question for you that is also partly related to hedging. I have been doing a number of wide-strike credit diagonals. When the market moves away from the strikes and I close the diagonal for a profit, the long backmonth option is often worth very little, particularly on the call side. When you close a diagonal like that, do you keep the almost-worthless long as cheap insurance for when the market cycles back the other direction? Or do you just close the whole spread and don't bother?
For instance, I currently have some ER2 FEB910 calls that are left over from a JAN/FEB credit diagonal. If the market does take off from here, the 910s will be a decent partial hedge against my other call spreads.
I have a question for you that is also partly related to hedging. I have been doing a number of wide-strike credit diagonals. When the market moves away from the strikes and I close the diagonal for a profit, the long backmonth option is often worth very little, particularly on the call side. When you close a diagonal like that, do you keep the almost-worthless long as cheap insurance for when the market cycles back the other direction? Or do you just close the whole spread and don't bother?
For instance, I currently have some ER2 FEB910 calls that are left over from a JAN/FEB credit diagonal. If the market does take off from here, the 910s will be a decent partial hedge against my other call spreads.
Just got back from a mini skiing vacation in Canada with not much opportunity for out of country trading. BTW: OMG what perfect powder conditions in Whistler BC! It made up for being stuck on the highway for 5 hours in what turned out to be the mother of all night time snow blizzards. There were cars & trucks sliding all over the sea-to-sky highway with thousands stranded in two feet of snow in sub-zero weather. There was no way for snow plows to get in or for EMTs to rescue/evac the gravely injured. Locals had to came out with personal snowmobiles to bring order and perform triage. Absolutely epic.
It feels good to be back again in the trading saddle making money since real-time data feeds would not work through the hotel's compression routers. Nothing like having to trade through a slow web order-entry interface between ski runs without benefit of streaming chart data to make one want to break from vacation and get home ASAP.
December turned out to be a "fair" IC month for me personally. With low volatility it took a lot of work to get in with reasonable premium and at reasonably far out strikes. But I managed to get both put and call credit spreads during the few up and down spikes we had in December. I held very comfortably through expiration but had one late scare while traveling in last Thursday' wicked run up before SET ahead of the COP data. I was calling my broker from the airplane phones...
DEC Results:
Net Profit $9,603
Avg Return on Margin: 5.82%
Average At Risk Margin: $165,000
I however shed a good part of Dec's overall risk by "no cost" spread adjustments late in the period to bring the long wings in from 10 to 5 point spreads. Essentially I just swapped minimum premium/debit by using the minimum bids at adjacent strikes as we approached expiration. It seems a lot of trader's are happy to get a nickle to free up margin early in the last few days before expiration. I know I was.
January is looking "difficult" due to a bull trending market and the predictable low VIX. I was able to establish an initial Jan position mid-last week on some moderate up/down chop but hope to add to it on some anticipated volatility spikes this or next week. But overall I expect the bull to trend into 2007 and there is considerable risk to rapid upside action as a lot of sidelined cash shook out in May (and massive global liquidity) comes back in to catch the train ride.
Happy Holidays,
TS
It feels good to be back again in the trading saddle making money since real-time data feeds would not work through the hotel's compression routers. Nothing like having to trade through a slow web order-entry interface between ski runs without benefit of streaming chart data to make one want to break from vacation and get home ASAP.
December turned out to be a "fair" IC month for me personally. With low volatility it took a lot of work to get in with reasonable premium and at reasonably far out strikes. But I managed to get both put and call credit spreads during the few up and down spikes we had in December. I held very comfortably through expiration but had one late scare while traveling in last Thursday' wicked run up before SET ahead of the COP data. I was calling my broker from the airplane phones...
DEC Results:
Net Profit $9,603
Avg Return on Margin: 5.82%
Average At Risk Margin: $165,000
I however shed a good part of Dec's overall risk by "no cost" spread adjustments late in the period to bring the long wings in from 10 to 5 point spreads. Essentially I just swapped minimum premium/debit by using the minimum bids at adjacent strikes as we approached expiration. It seems a lot of trader's are happy to get a nickle to free up margin early in the last few days before expiration. I know I was.
January is looking "difficult" due to a bull trending market and the predictable low VIX. I was able to establish an initial Jan position mid-last week on some moderate up/down chop but hope to add to it on some anticipated volatility spikes this or next week. But overall I expect the bull to trend into 2007 and there is considerable risk to rapid upside action as a lot of sidelined cash shook out in May (and massive global liquidity) comes back in to catch the train ride.
Happy Holidays,
TS
Quote from jeffm:
Hi Mark. Glad to see you're still around
Thanks
I have a question for you that is also partly related to hedging. I have been doing a number of wide-strike credit diagonals. When the market moves away from the strikes and I close the diagonal for a profit, the long backmonth option is often worth very little, particularly on the call side. When you close a diagonal like that, do you keep the almost-worthless long as cheap insurance for when the market cycles back the other direction? Or do you just close the whole spread and don't bother?
I close.
Whatever cash is remaining in that OTM option usually represents a significant portion of my profit and I'm not going to gamble it away. Example, if I make 4%, or $1.20, on a 30-point wide spread, I will NOT hold a naked long when I can sell it for 30 cents. That's one fourth of my profit and I want it.
However, if the long is only going to get me a nickel or dime and if there is at least one month remaining before it expires, I'll hold it.
That's how I handle it. I consider it an individual decision, rather than something about which I feel strongly.
Mark
Jan/Dec Double Diagonal Update:
Jan/Dec Double Diagonal was very flat. VIX crush kept any profit from materializing, but unlike some credit spread traders, no losses either.
It's been nine months now trading Diagonals, not that this makes anyone a seasoned trader, but what we have experienced and still like most is the ability to morph the position if need be... and the VEGA spike opportunity which it allows for.
Although the past two diagonal positions have netted little profits, the potential return and play in the market for VEGA without suffering a loss was a strategic success.
We did however have intra month success trading within the Double Diagonal using our "Tent Pole" or Put Calendars. Three times we placed the 'pole' and on three pull backs (and increase VEGA) we accumulated some bonus profits.
Hope everyone has an enjoyable & prosperous holiday season.
Celebrate these days with friends and family, but consider taking a few moments to reflect on those who make it all possible.
And special thanks to everyone who contributed to the value of this thread throughout the year.
Happy New Year
Murray
&
TheGrandRapidsInvestmentClub
Jan/Dec Double Diagonal was very flat. VIX crush kept any profit from materializing, but unlike some credit spread traders, no losses either.
It's been nine months now trading Diagonals, not that this makes anyone a seasoned trader, but what we have experienced and still like most is the ability to morph the position if need be... and the VEGA spike opportunity which it allows for.
Although the past two diagonal positions have netted little profits, the potential return and play in the market for VEGA without suffering a loss was a strategic success.
We did however have intra month success trading within the Double Diagonal using our "Tent Pole" or Put Calendars. Three times we placed the 'pole' and on three pull backs (and increase VEGA) we accumulated some bonus profits.
Hope everyone has an enjoyable & prosperous holiday season.
Celebrate these days with friends and family, but consider taking a few moments to reflect on those who make it all possible.
And special thanks to everyone who contributed to the value of this thread throughout the year.
Happy New Year
Murray
&
TheGrandRapidsInvestmentClub
As I posted last week, my diagonals went pretty much flat after the VIX crush at expiration again. Seems like I'm spinning my wheels the last few months, market makes a run at my upper end, killing VIX and my profit. Up side is that I am comfortable with it and have been able to manage the position well. I actually butterflied my puts to lock in a profit and give me a lottery ticket on a market fall. If it wasn't for this move my Dec/Jan would have lost money more than likely.
I can't for the life of me find a Jan/Feb position that I like. On either side of my tent pole I get dips that go below zero. I know that the diagonals are a volatility play and I should buy VEGA when it is on sale (to steal a quote from Sailing) but the dips are a little deep for me right now. Anybody able to put on a decent diagonal this week or last for that matter?
I can't for the life of me find a Jan/Feb position that I like. On either side of my tent pole I get dips that go below zero. I know that the diagonals are a volatility play and I should buy VEGA when it is on sale (to steal a quote from Sailing) but the dips are a little deep for me right now. Anybody able to put on a decent diagonal this week or last for that matter?