SPX Credit Spread Trader

Quote from TrendSailor:

I am not not so much betting as I am hoping for some more up down chop to get VIX pumped up in excess of 12. But I do anticipate a new rotation of market leadership from large cap value toward mid & large cap growth stocks going forward through April. So I am anticipating that a lot more herd cash will come rushing in along with new rounds of pension fund, IRAs and mutual fund re-calibrations providing a good base to advance SPX upward quite a bit.

The SPX has been riding its 20 day moving average like it was on precision fitted rails for 4-5 months. My opinion is we will be subject to a few 10-20 point intraday runs down and up as money rotates among new leaders. Personally I have 10 point credit spread orders locked and loaded 50-60 points out waiting for those transient vol premium opportunities which I'll pin around what I project to be period lows and highs.

I think Santa still may come in with a late round of rum-pa-pa-pum to get the bears drunk and mostly hibernating through Spring. This time of year people just hate to feel left behind and I think the bull market has a way to go yet. Nonetheless, I am hedging with a large long position in Diageo (DEO) so no matter what I can't lose. :p

TS
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Personally I'm only expecting one more good push higher during a rather choppy JAN. Then a relatively uneventful FEB MAR and early APR.
 
Quote from ryank:

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.
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Today, I would be opening only Mar/Feb spreads, unless there was a specific Feb/Jan that looked just too good to pass. And if I were able to do so, I would consider Apr/Mar.

It used to be possible for me to get the mid-point, or a nickel worse. Then the MMs would give about a dime on each side, so 20 cents better than the natural bid/ask was the best I could do. Now, it's hit and miss. Sometimes they fill me as much as 25 cents better than the natural b/a and at other times they won't budge. I then must wait until the market moves, or I get no fill. Yes, 'slippage' makes things difficult.

1) I know I am not able to predict market direction. thus, I do not time my entries

2) I try to keep an equal number of put spreads and call spreads, but often get out of whack - due to market movement

3) I sell call spreads on rallies and put spreads on declines

4) I am more afraid of a decline here, so will carry more call spreads (with extra longs as some protection)

To answer your question, I do not go one sigma out. I go as far out as possible, as long as it gives me my minimum premium for a 30-point spread (RUT, MID, RUI). What's my minimum? It varies. I'd like to say 60 cents, or 2% of margin, but I sometimes take less.

Sometimes I go one strike closer to the money, if the premium is attractive or if I 'feel' that the index will not get that high. Example: on the recent highs, when I was selling calls, I chose to sell RUT 820s. On the previous rally, I sold the 880s. It just depends on what looks attractive to me.

For me, it's an art, not a science. Thus, is difficult to describe in detail.

Mark
 
Quote from Maverick74:

... you can focus on trying to make 1% to 2% a month and still make a living with very tight risk controls. Obviously the more money you have the better.

Now I know a lot of you are going to say, 1% to 2% a month? Are you serious? Well, considering the smartest, brightest, most talented fund managers in the world can barely make 1% to 2% a month, it's very though to consistently return those numbers over the long run.
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OK... I am quoting a portion of a very old post from Mav (#551). And here is my point:

Last weekend I ragged on Mav about being a 'riddler', and I was off-base in my criticism, and I apologize. Since last weekend, I have read every post that Mav has made on this forum (about 120), and I must admit that Mav has been generous in sharing his perspective on the risk aspects of vertical credit spreading thru his posts.

I don't think Mav ever intended to engage in sharing specific trade preferences, but rather wanted to share his 'view' as a prop firm manager along with what he looks for in terms of necessary risk control among the traders associated with his firm. (If I'm wrong... sue me).

While I've made a little money doing verticals, I am drawn to Mav's idea of "making 1% to 2% a month and still make a living with very tight risk controls". Unfortunately, I've not seen any options trading styles revealed here that match this concept (of course I am still weeding my way thru the rest of the posts).

I am currently making 6% to 7% per year with very little risk (not w options), but would appreciate more insight into tighter risk control w options that yields 1 - 2% per month.

Can anyone suggest an options strategy worthy of further research that would have the attributes mentioned by Mav?

It would be neat to be near a resource like Murray's Grand Rapids Investment Club, but its' hard to find that in the rural environment that I've chosen to live in.

D
 
Mark, or any other IB customer, can do the same thing right now by trading the diagonals with emini futures options and SPAN margin. Any good futures broker gives you the same capability. For the regular trader, much easier than going with a haircut account.

Which is not to suggest you take the extra leverage and max it out. But it does give you the flexibility to adjust and react, if warranted.

Caveat venditor Let the seller beware :)

Quote from Sailing:
In a haircut account.... your 100% invested portfolio would only require about 40%
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Since someone brought up an old quote by Maverick, here is my favorite quote from 10-17-05 10:26 PM:

:D LOL...


Quote from Maverick74:

Option Coach, I'll just come out and say it then. No need to keep dissecting this strategy. I think you came to this website to sell something. And the fact that you eluded to other sites you post on, only reinforces this view. I have a problem with people who are trying to sell the oldest trick in the option book, the old iron condor to the ignorant public. Are you trying to sell books, seminars, newsletter? Which one is it? Or are you trying to raise money?

If you are honest about it, I'll give you your kudos and bid you good luck. If you are not, well, I will start a thread and lay out the exact premise behind the con game on another thread. There are many folks on ET that do this and they have been driven off this site. I think what you are doing is unethical. If you want to sell something, just come out and say it. Also, why don't you list these other sites you are using for the same purpose?

Now maybe I am wrong here. I accept that. But I have been on these boards for 3 years and have traded for 9, so I know the game pretty well by now. I'm going to go with my gut instincts here. They haven't let me down yet.
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The RUT market makers are getting more and more difficult.

Today, a spread market was 0.50 to 1.10; I offered to sell at 0.70 and there wasn't even a nibble. Not even a $0.55 bid.

Pretty sad.

Mark
 
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