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SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Domestic, is rolling/repairing really any different that closing a trade and taking the loss, waiting and re-evaluating, and putting on a new trade?
Quote from domestic:
i agree that adjusting down or up is not the brightest move, although it has worked for many years in my trading. i continue to search for a better way to "repair". when you close a bad trade; it must take some strong discipline to not open new positions immediately.
Quote from dagnyt:
[B
It matters. It just plays no role (I know that I hold the minority viewpoint here) in deciding when/whether to adjust/hold/close.
Mark [/B]
Mark,
You are not the minority. I agree with you in your decision making process.
Rally,
Consider yourself a new portfolio manager, someone gives you his portfolio, and ask you to manage the portfolio from now on. What do you look at? I will look at the risk, potential return, and other opportunities and adjust the portfolio. I don't care about the current p&l, or the initial cost. I only care how to make money from now on.
Quote from andysmith:
Unfortunately, it's much more painful to get stopped out of a credit spread than an equity/futures trade because of the b/a slippage on the spread. How do you overcome this disadvantage? Any advice is much appreciated.
andy, i dont enjoy overpaying in edge any more than the next trader but sometimes its a cost we just have to eat. Unfortunately, unless you have a robust signal, the -edge can eat up a nice chunk of your expectancy.
If its too big of a deal, you could look at the es options for inside quotes or cut size and trade less legs (naked).
Rally, it's not too big of a deal... just not pleasant.
Do you base your stops on support/resistance levels of the underlying (I recall the charts you used to post with RSI and stochs to show o/b and o/s) or do you use an ATR based stop such that the stop is outside the market noise?
I read an earlier post of yours stating you are "30 deltas on the sell side". Please explain.
Do you base your stops on support/resistance levels of the underlying (I recall the charts you used to post with RSI and stochs to show o/b and o/s) or do you use an ATR based stop such that the stop is outside the market noise?
I read an earlier post of yours stating you are "30 deltas on the sell side". Please explain.
Quote from rallymode:
andy, i dont enjoy overpaying in edge any more than the next trader but sometimes its a cost we just have to eat. Unfortunately, unless you have a robust signal, the -edge can eat up a nice chunk of your expectancy.
If its too big of a deal, you could look at the es options for inside quotes or cut size and trade less legs (naked).
Quote from rallymode:
I meant that i generally avoid selling options that carry less than 30 deltas. Under current vols thats about 25 points OTM on the SPX.
Interesting!
Why reference a 'hard coded' delta related to current vols when vols are variable and change day to day?
Wouldn't it be more relevant to reference a variable of current IV, like 1st or 2nd StDev calc based upon current IV combined with days to Expire?
But then again, I'm convinced I'm still in over my head here.
D
the effect is similar.
Quote from MechTrade:
Interesting!
Why reference a 'hard coded' delta related to current vols when vols are variable and change day to day?
Wouldn't it be more relevant to reference a variable of current IV, like 1st or 2nd StDev calc based upon current IV combined with days to Expire?
But then again, I'm convinced I'm still in over my head here.
D
Quote from dagnyt:
Hi Rally,
I think you and I are in total agreement.
Sure, the initial credit received is important - but IMHO, it's only important in deciding whether or not to open the position. My disucssion is based on the assumption that the "to open or not to open" decision has already been made. Once I own a position, there is nothing I can do about the initial credit or how much I have made (or lost) so far on that position. I believe that the decision to adjust, close, or hold is not related in any way to that initial credit.
Regarding 'fat gamma': It stands to reason that a spread that is CTM will be sold for a much higher credit than a spread that is FOTM. Greater risk means greater rewards. It also means more skill is required in managing the position (a point often overlooked). My point is that whether one collects $4, $2, or $1 for a given spread, managing risk and deciding whether to adjust, hold, or close should not be based on that credit. N'est pas?
Mark
Just curious Mark. Using a synthetic analog to your rationale would you also never sell/close a long stock position based on a trailing stop loss or a stop loss?
In my logic system the initial "unearned" credit/premium received is important in managing the position since it establishes and brackets the magnitude of the risk-reward span. Some traders use a threshold exit criteria/methodology (e.g. 50% ) on a losing (or winning) position to preserve trading capital or to partially sell winning positions for a risk free ride on the house. I therefor don't think it can be properly or logically generalized that initial premium/credit is fully irrelevant.
TS