SPX Credit Spread Trader

[dagnyt]

Quote from ryank:

As I posted last week, my diagonals went pretty much flat after the VIX crush at expiration again...I can't for the life of me find a Jan/Feb position that I like.

I found the Feb/Jan diagonals to be especially profitable. Of course, I opened them awhile ago - and am already out of almost every one.

We have all seen the potentia for spectacular results when holding to the end (as detailed by Murray), but stories such as yours counterbalance those.

I have 2 suggestions:

1) Stop paying debits for these spreads. There will be no risk of losing money on both the puts and the calls. If the market runs away from the strikes, you will have a good profit. Close early and take it.

2) Open positions when they are 2+ months away from expiration. Sure, holding longer presents risks, but the larger credits compensate for that. And there is no need to hold until expiration.

I have only Mar/Feb positions remaining right now - and several of them are ripe for closing. The only problem is that there are no April options to buy, so I cannot open the Apr/Mar, as I would prefer to do.

Mark

 

[ryank]

Quote from dagnyt:

I have 2 suggestions:

1) Stop paying debits for these spreads. There will be no risk of losing money on both the puts and the calls. If the market runs away from the strikes, you will have a good profit. Close early and take it.

2) Open positions when they are 2+ months away from expiration. Sure, holding longer presents risks, but the larger credits compensate for that. And there is no need to hold until expiration.

I have only Mar/Feb positions remaining right now - and several of them are ripe for closing. The only problem is that there are no April options to buy, so I cannot open the Apr/Mar, as I would prefer to do.

Mark

Over the last few months I have occasionaly looked at putting on a credit double diagonal like you prefer. The way you do them seems to be less vega sensitive and more margin intensive. I'm playing around with one right now in ToS to get more of a feel for what you do. I may do a small one to test it out and work on getting a comfort level with this style. By putting the DD on for a credit it takes care of the dips that come with the debit DD style but you give up the benefit of vega in a big market move down. I think I'm understanding how you put on the DDs or maybe I am off base in my observations.

Thanks for the suggestions.

 

[dagnyt]

Quote from ryank:

The way you do them seems to be less vega sensitive and more margin intensive.

Yes, those are the negative features. But, is being VEGA neutral so bad? These positions do get long VEGA as time passes.

I'm playing around with one right now in ToS to get more of a feel... By putting the DD on for a credit it takes care of the dips that come with the debit DD style but you give up the benefit of vega in a big market move down.

Thanks for the suggestions.

Yes. I have no potential for a huge VEGA gain, just a small one.

What I do suits me - and one of the important factors in choosing a strategy is being comfortable with it.

My target is a modest 4% per month and I find this gives me a good chance to reach that goal. I note that the profits quoted by others on this thread seem to dwarf that figure.

Mark

 

[cdowis]

>4% per month

What is the target for a specific trade, taking losses into account? e.g. do you close a trade at a 10% profit target

 

[kapil]

Mark,

I think 4% per month is phenominal. How close do you come to acheiving this? How bad have the drawdowns been?

Kapil

 

[ryank]

Quote from dagnyt:

Mark,

I have a question about your method. If you were to put on a Feb/Mar DD today would you place your short Feb options at 1SD (or whatever your preference is, I'm just pulling a number out of the air) for Jan or for 1SD for Feb? I ask this because you are closing roughly 1 month before expiration of your short.

I imagine trying to get a fill without horrendous slippage isn't possible is it? The far month options tend to have little volume.

 

[Arnie Guitar]

Quote from kapil:

I think 4% per month is phenomenal. How close do you come to achieving this?

I think >4%/mo ROI with some regularity is achievable,
>4%/mo ROP is harder.
I like to keep some powder dry for emergencies,
so it cut's into the ROP.



ROI, return on investment
ROP, return on portfolio.

 

[yip1997]

Quote from dagnyt:

I found the Feb/Jan diagonals to be especially profitable. Of course, I opened them awhile ago - and am already out of almost every one.

We have all seen the potentia for spectacular results when holding to the end (as detailed by Murray), but stories such as yours counterbalance those.

I have 2 suggestions:

1) Stop paying debits for these spreads. There will be no risk of losing money on both the puts and the calls. If the market runs away from the strikes, you will have a good profit. Close early and take it.

2) Open positions when they are 2+ months away from expiration. Sure, holding longer presents risks, but the larger credits compensate for that. And there is no need to hold until expiration.

I have only Mar/Feb positions remaining right now - and several of them are ripe for closing. The only problem is that there are no April options to buy, so I cannot open the Apr/Mar, as I would prefer to do.

Mark

There are many ways of trading diagonals. Sailing is more a vega play, and Mark theta decay.

While Mark closed the credit diagonal when he has good profit, I normally add more diagonals for more potential profit, and/or convert profitable diagonals to verticals. Decemeber is a good month with around 3.7% return on portfolio.

 

[dagnyt]

Quote from cdowis:

>4% per month

What is the target for a specific trade, taking losses into account? e.g. do you close a trade at a 10% profit target

This will sound strange, but I have no target for any specific trade.

If I open early and get a 1.50 credit (on a 30-point wide spread), or if I open 2 weeks later and get only 60 cents for that same spread, my decision to close will be identical. IOW, the decision to get out of a trade is totally unrelated to the amount of cash I collected when initiating the position.

I try to close by never paying a debit. Obviously, if the market runs against and the short strike is breached, then I close and take my loss. But, left to my own devices, I close when the credit is decent - a very relative term, or if I fear that the credit present in the position may disappear, or if I believe the short is too near to the money (and may turn against me big time). I may also close early if I have used all my margin room and there are attractive spreads I want to open - in a further expiration. Another time to clsoe is there is little likelihood that the market will move to produce a much larger profit - IOW, if holding does not look good, I take my small credit and move on. That frees up margin for a better position.

It's all relative with no hard and fast rules.

Mark

 

[kapil]

Quote from Arnie Guitar:

I think >4%/mo ROI with some regularity is achievable,
>4%/mo ROP is harder.
I like to keep some powder dry for emergencies,
so it cut's into the ROP.



ROI, return on investment
ROP, return on portfolio.

I think ROI and ROP are the same for Mark, which is why it is such a good target return. Mark, please correct me if I am wrong.