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SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
I used to trade OEX SPX RUT RIMM etc.. but since the Israel Lebanonwar I saw an 18% profit dissipate in one month in July. I expected down market in Aug, Sep and I kept losing more in FOTM. My account went from 43K in January to 52K in May to 28K in SEP.
Then I decided not to leave the market but to change strategy. That's when I decided to go from FOTM to CTM, ITM and sometimes FOTM and then wait for the right setup to enter a trade.
Since then, I concentrate on RUT
In Oct the account went from 28K to 33K; In Nov it went from 33K to 48.9K and as of today the account is 56.9K.
With my new strategy I am expecting between 8K to 10K minimum a month.
This month I am up 6K with 2 weeks to go with a potential of up to 23K of profit. Anytime I can get 10-12K from this 23K, I will take it and move on. So time is of essence; more flat days or small gain or loss days you get better it is for you.
Every month I try to duplicate the same startegy and at the same time correct possible error or misteps. I am still tuning my process and at the same time respecting the fundamental of the strategy.
To trade CTM, ITM one needs to understand charting and TA overbought/oversold signals that work.
Then I decided not to leave the market but to change strategy. That's when I decided to go from FOTM to CTM, ITM and sometimes FOTM and then wait for the right setup to enter a trade.
Since then, I concentrate on RUT
In Oct the account went from 28K to 33K; In Nov it went from 33K to 48.9K and as of today the account is 56.9K.
With my new strategy I am expecting between 8K to 10K minimum a month.
This month I am up 6K with 2 weeks to go with a potential of up to 23K of profit. Anytime I can get 10-12K from this 23K, I will take it and move on. So time is of essence; more flat days or small gain or loss days you get better it is for you.
Every month I try to duplicate the same startegy and at the same time correct possible error or misteps. I am still tuning my process and at the same time respecting the fundamental of the strategy.
To trade CTM, ITM one needs to understand charting and TA overbought/oversold signals that work.
Quote from yip1997:
I agree. I started trading RUT vertical and diagonals since July, and now devote all my buying power in RUT.
I don't see any good reason to diversify to other indices. Having one instrument make position management a lot easier.
Piccon -- I like you approach to spreads on RUT. How long do you hold the credit spreads? Do you ever buy any debit spreads?
Quote from piccon:
The only reason I questioned the FEb PUT position is because I know RUT and the general market are overextended and the downside is much greater than the upside.
Me I trade mostly on technical. When you enter based on overbought/oversold criteria, the profit potential is much more.
My two cents.
The initial credit defines the trade's R/R... so it's very important... and dictates the adjustment strategy (hedge versus adjust, etc).
Quote from dagnyt:
Hi yip,
To me, the initial credit is immaterial. He owns the position now and the only thing that matters (in my opinion) is whether to try to close (or hold to the end) and how much to pay.
Mark
Quote from andysmith: The initial credit defines the trade's R/R... so it's very important... and dictates the adjustment strategy (hedge versus adjust, etc).
That viewpoint represents the thinking of the vast majority of traders and is 100% incorrect.
Consider this: You open a credit spread for $2 and some time passes. Let's say that you can now close the position for a 40 cent debit. You have a choice: keep this spread open or close it.
Do you make your decision to close (or not to close) based on the initial credit? Would you close had you received a $4 initially but not if you collected only $2?
If you say the credit matters, you have a common blind spot. In the scenario above, you own a position TODAY and must decide if you want to maintain the position in an attempt to earn all, or part, of the remaining 40 cents. That's the choice. TODAY 40 cents remains. That's the most you can earn from this point forward. What you gained (or lost) to date is immaterial. You must decide if it's worth holding based on the likelihood of earning additional profits and the risk involved in trying to collect that profit. Some traders (me, for example) also weigh the profit potential from this spread vs. the profit potential (and risk) of another spread that could be opened if margin were freed up by closing the current position.
You speak of adjustments. If a hedge is needed to minimize risk, then it's needed. It has nothing to do with the credit collected when opening the trade. Are you telling me that you would not hedge a spread just because you collected a smaller premium when you initiated the position, but would do so if the initial credit were larger? That's saying there is too little proft in one position, so you cannot afford to hedge. Do you just shut your eyes and hope for the best? I hope not, for that's an absurd way to manage risk.
Mark
Quote from piccon:
I used to trade OEX SPX RUT RIMM etc.. but since the Israel Lebanonwar I saw an 18% profit dissipate in one month in July. I expected down market in Aug, Sep and I kept losing more in FOTM. My account went from 43K in January to 52K in May to 28K in SEP.
Then I decided not to leave the market but to change strategy. That's when I decided to go from FOTM to CTM, ITM and sometimes FOTM and then wait for the right setup to enter a trade.
Since then, I concentrate on RUT
In Oct the account went from 28K to 33K; In Nov it went from 33K to 48.9K and as of today the account is 56.9K.
With my new strategy I am expecting between 8K to 10K minimum a month.
This month I am up 6K with 2 weeks to go with a potential of up to 23K of profit. Anytime I can get 10-12K from this 23K, I will take it and move on. So time is of essence; more flat days or small gain or loss days you get better it is for you.
Every month I try to duplicate the same startegy and at the same time correct possible error or misteps. I am still tuning my process and at the same time respecting the fundamental of the strategy.
To trade CTM, ITM one needs to understand charting and TA overbought/oversold signals that work.
Congratulation for your new style. It seems you have a bigger success by changing from FOTM to CTM. Your return is very impressive for the last 2 months.
Can you explain why your account went from 52K in May to 28K in Sep? It was close to 50% drawdown. Did you open many wings as you do now? Did you cut your loss? I am trying to learn from your mistakes as I currently trade FOTM. I have made around 20% since July, and I don't want my profit disappear.
Quote from yip1997:
... I am trying to learn from your mistakes...
I know you did not address this to me, but...
No method is foolproof. The fact that he lost money one month does NOT indicate he made any mistakes.
And please keep in mind - his methods involve successfully predicting market direction. If you cannot do that, then you cannot duplicate his results.
Mark
Quote from dagnyt:
That viewpoint represents the thinking of the vast majority of traders and is 100% incorrect.
Well thats a bit one sided. While i concur with your assessment that a position should be evaluated on the fly and kept open only if the current risk/reward is in line with personal expectations, i disagree that initial credit is "immaterial". Perhaps, i am reading you wrong but i will make this point anyway.
It seems this whole discussion started when someone said how they were comfortable with a position which is closer to the market yet suggested that another poster be careful with theirs which was farther away. Mark, you of all people should know better and the answer is gamma. A prudent risk manager who sells peak gamma isnt and shouldnt be as concerned as someone who has sold against the upside slope. One of the reasons for selling fat gamma is just that, the feasibility of management. The initial credit received is a direct result of the type of curvature you have sold, so saying it is immaterial is like saying it doesnt matter whether you sold cheap or expensive gamma.
Didnt mean to interrupt, just thought i'd throw in my 2 cents.
Wow...this line has starting getting a few more supporters of CTM, ITM spreads. I still dont understand why some of you think CTM is safer than FOTM. CTM and ITM get great profits if they work, but you have to be awesome at predicting where the market is going or you will get burned badly. For people like me who aren't very good at predicitng the market, FOTM has been very good. No crazy returns, but small consistent returns with lots of room to adjust if necessary.