You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Andy,
I don't close unless the indicators or price action are against me.
MY ITM CTM spreads are:
790/800 ITM Jan Call @5.30
770/760 CTM Jan Put @ 2.00
and the wings are:
810/820 Jan FOTM Call@1.70
740/730 Jan FOTM PUT @1.15
A close above 781 MA(50), I will close The 790/800 call
A close below 770, I will close all my puts and the 790/800 Call
I also look at the premium received; I have a total of 25K premium. If I make half of it, I will consider closing everything. As of 12PM today, I am up 8K from the last month Account Value. If I can make another 4-5K for a toal of 12-13K, I may take it and run.
Last month I made 15K, If I could duplicate it, It would be nice.
All I am hoping for is a consolidation between 780 and 770 until Friday. My plan is to close everything Next Tuesday 16th because I don't want to be in this market next Wednesday when PPI (Wednesday) and CPI (Friday) move this market furiously
Friday expiration will be a good time for me to enter some CTM or ITM. It will depend on indicators (Put or call)
I do buy debit spread or just long IWM sometimes for some extra. Thursday I bought 25 IWM 77PUT @ 0.60 based on Nasdaq short term overbought and I closed the position Friday@ 1.00 for a 937.00 net profit. I also opened 25 IWM 76/75 @0.30 debit.
So I do some debit too, when oversold/overbought situation present itself
I don't close unless the indicators or price action are against me.
MY ITM CTM spreads are:
790/800 ITM Jan Call @5.30
770/760 CTM Jan Put @ 2.00
and the wings are:
810/820 Jan FOTM Call@1.70
740/730 Jan FOTM PUT @1.15
A close above 781 MA(50), I will close The 790/800 call
A close below 770, I will close all my puts and the 790/800 Call
I also look at the premium received; I have a total of 25K premium. If I make half of it, I will consider closing everything. As of 12PM today, I am up 8K from the last month Account Value. If I can make another 4-5K for a toal of 12-13K, I may take it and run.
Last month I made 15K, If I could duplicate it, It would be nice.
All I am hoping for is a consolidation between 780 and 770 until Friday. My plan is to close everything Next Tuesday 16th because I don't want to be in this market next Wednesday when PPI (Wednesday) and CPI (Friday) move this market furiously
Friday expiration will be a good time for me to enter some CTM or ITM. It will depend on indicators (Put or call)
I do buy debit spread or just long IWM sometimes for some extra. Thursday I bought 25 IWM 77PUT @ 0.60 based on Nasdaq short term overbought and I closed the position Friday@ 1.00 for a 937.00 net profit. I also opened 25 IWM 76/75 @0.30 debit.
So I do some debit too, when oversold/overbought situation present itself
Quote from andysmith:
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 TrendSailor:
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?
That stop is part of an intelligent risk management system. That you would ask such a question is mind boggling.
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
Although your statements and 'your logic system' conclusions seem reasonable, they are in conflict with my logic system.
If you have a position today, it does not matter how long ago you opened that position. The risk (again IMHO) must be managed from where that position stands today.
If you have a position that you can close at a certain price today, then that is the price from which you must manage that position. The current risk/reward must be examined, not some r/r that was in place in the past. You may still decide to exit the position at a price that corresponds with an initial 50% gain or loss (per your scenario), but it is likely that a different exit point would be more suitable.
If you sit down a a blackjack table and make $100, that is your $100. To conclude that you are playing with house money and you cannot lose if you pocket your original stake, is erronious. Sure that prevents you from being a net loser for the session, but if lose that $100, you have lost $100 of your money.
Similarly, when a position has made a certain profit, that is your profit and your money. In my opinion, it is not reasonable to base the 'close or hold' decision on the original credit. And if that position gets dangerous and reaches a point at which risk/reward is unacceptable today, then it's time to adjust or close - and the original credit has no relevance.
Ask yourself: Would you hold (and choose not to adjust) a position if the original credit were $400 for a longer time than if the original credit were $200 - just becaue you have more cushion? I would NEVER do that.
This is going to be one of those situations in which wea re going to have to agree to disagree. One of us has a big blind spot, and that's all we can agree upon.
Mark
Quote from piccon:
This market may inch higher in the next 3-4 days. Nasdaq has been acting very strongly since last 4 sessions. We would have been much lower by now if it wasn't for Nasdaq. Be careful
piccon,
I agree with your outlook. I opened the call spread b/c I found the downside risk is not tolerable ( I have a short of 780 put as part of my diagonal ). To reduce my delta risk, I opened this trade. If the market agrees with our outlook, my hedge actually will add to the profit.
At the current time, my delta is -.06 (almost neural because of the upward movement), and with theta of 350, I am still happy with my hedge because it will reduce my risk significantly
When rut goes above 790, i will make further adjustment.
Thank you all for your contribution to the trade adjustment discussion.
I finally understand the logics of both camps. Mark's idea is that the risk tolerance is the same everyday.
However for some traders, since they have sufficient profit (paper or booked), they change the daily risk tolerance.
IOW Mark uses a daily risk tolerance, and others use the monthly risk tolerance. There are nothing wrong with both approaches. I think Mark's approach is better for active management (if you trade full time), and the other approach is better for passive management (if you have another full time job).
BTW, this is my own assessment, and you guys might disagree.
I finally understand the logics of both camps. Mark's idea is that the risk tolerance is the same everyday.
However for some traders, since they have sufficient profit (paper or booked), they change the daily risk tolerance.
IOW Mark uses a daily risk tolerance, and others use the monthly risk tolerance. There are nothing wrong with both approaches. I think Mark's approach is better for active management (if you trade full time), and the other approach is better for passive management (if you have another full time job).
BTW, this is my own assessment, and you guys might disagree.
You see,
You opened 800/810 Credit for 0.85. The market indicated reversal this morning when RUT touched 770; that's why I didn't do anything with 770/760.
I did put an order for 800/810 call debit @0.70 but I didn't get it.
I trade RUT mostly on SPX and Nasdaq movement because RUT goes at these guys go.
5 reasons why RUT is better for Credit Spreads than SPX:
1) RUT moves faster than SPX on the way down
2) RUT moves slower than SPX on the way up
3) RUT remains in a consolidation channel longer than SPX
4) You get filled faster with RUT
5) You get equal or better premium with RUT
RUT is more volatile, get in get out faster
I studied RUT price movement for more than a year before I come to that conclusion.
You opened 800/810 Credit for 0.85. The market indicated reversal this morning when RUT touched 770; that's why I didn't do anything with 770/760.
I did put an order for 800/810 call debit @0.70 but I didn't get it.
I trade RUT mostly on SPX and Nasdaq movement because RUT goes at these guys go.
5 reasons why RUT is better for Credit Spreads than SPX:
1) RUT moves faster than SPX on the way down
2) RUT moves slower than SPX on the way up
3) RUT remains in a consolidation channel longer than SPX
4) You get filled faster with RUT
5) You get equal or better premium with RUT
RUT is more volatile, get in get out faster
I studied RUT price movement for more than a year before I come to that conclusion.
Quote from yip1997:
piccon,
I agree with your outlook. I opened the call spread b/c I found the downside risk is not tolerable ( I have a short of 780 put as part of my diagonal ). To reduce my delta risk, I opened this trade. If the market agrees with our outlook, my hedge actually will add to the profit.
At the current time, my delta is -.06 (almost neural because of the upward movement), and with theta of 350, I am still happy with my hedge because it will reduce my risk significantly
When rut goes above 790, i will make further adjustment.
Quote from piccon:
You see,
You opened 800/810 Credit for 0.85. The market indicated reversal this morning when RUT touched 770; that's why I didn't do anything with 770/760.
I did put an order for 800/810 call debit @0.70 but I didn't get it.
piccon,
Did you mean a bull 800/810 call spread since it was a debit? Why would you want to open this debit spread if you think rut will consolidate.
I was confused with your positions because you sometimes didn't mention whether they were credit or debit spreads? (I thought you opened mostly credit spreads.)
1)
It was a debit.
I do have 3.4K credit for 810/820; If I create 800/810 debit @ 0.70 for 1k, That's would have created the BF for 1.00 credit; win win situation.
You have to cover all the corners. I am hoping for consolidation; what if I am wrong, I have to protect what I already got.
It was a debit.
I do have 3.4K credit for 810/820; If I create 800/810 debit @ 0.70 for 1k, That's would have created the BF for 1.00 credit; win win situation.
You have to cover all the corners. I am hoping for consolidation; what if I am wrong, I have to protect what I already got.
Quote from yip1997:
piccon,
Did you mean a bull 800/810 call spread since it was a debit? Why would you want to open this debit spread if you think rut will consolidate.
I was confused with your positions because you sometimes didn't mention whether they were credit or debit spreads? (I thought you opened mostly credit spreads.)
Quote from dagnyt:
Although your statements and 'your logic system' conclusions seem reasonable, they are in conflict with my logic system.
If you have a position today, it does not matter how long ago you opened that position. The risk (again IMHO) must be managed from where that position stands today.
If you have a position that you can close at a certain price today, then that is the price from which you must manage that position. The current risk/reward must be examined, not some r/r that was in place in the past. You may still decide to exit the position at a price that corresponds with an initial 50% gain or loss (per your scenario), but it is likely that a different exit point would be more suitable.
If you sit down a a blackjack table and make $100, that is your $100. To conclude that you are playing with house money and you cannot lose if you pocket your original stake, is erronious [sp]. Sure that prevents you from being a net loser for the session, but if lose that $100, you have lost $100 of your money.
Similarly, when a position has made a certain profit, that is your profit and your money. In my opinion, it is not reasonable to base the 'close or hold' decision on the original credit. And if that position gets dangerous and reaches a point at which risk/reward is unacceptable today, then it's time to adjust or close - and the original credit has no relevance.
Ask yourself: Would you hold (and choose not to adjust) a position if the original credit were $400 for a longer time than if the original credit were $200 - just becaue [sp] you have more cushion? I would NEVER do that.
This is going to be one of those situations in which wea re going to have to agree to disagree. One of us has a big blind spot, and that's all we can agree upon.
Mark
I had prepared a well thought out response but to make my point required too much "verbosity" curvature. That is in conflict with my new year's resolution so I'll be brief & leave you with a final concept to ponder.
Most FOM credit spreads generate very small premium (especially under current low VIX conditions). That means slippage and minimum price bids ($.05) make initial credit received extremely important. In fact the real art to making money (front month trading) in FOM ICs is done up front in "getting in" at as high as possible and opportunistically adding on momentary IV spikes. But often the premium received is so small that there is NO pragmatic room to actively manage the position at all and still remain profitable. In these positions any active position management overhead can easily wipe out huge percentages of that initial unearned/theoretical credit. In that sense initial credit received for initial position expectation establishes the entire management trade-space of the position and becomes integral with the nature of the position (its not just the Greeks) and the position strategy. The greater the initial credit the more trade space we have and the better our P-L theoretical becomes compared to an identical position put on for lower credit. That should make it obvious that initial credit is important in forming the metric for assessing (e.g. managing) if we are on schedule for realizing our credit relative to expected time burn. I'd rather exit early to make 30% on $65 than 50% on 40$ since the net profit in this typical kind of front month credit variation turns out to be a 75%% difference in net. That's a "scale" effect that permits me to sell less net delta liability for the same dollar take home.
While all FOM Iron Condors have similar curvature the rate at which we earn our credits (relative to a percentage of our maximum) is intimately bound to our original credit (exponential decay with a larger initial multiplier/amplitude). For winning credit positions traders have the opportunity to realize a greater total net dollar income earlier with a larger credit than they do with a smaller initial one (for the same number of contracts). Given two identical positions put on in separate accounts with different initial credits that means I may be able to exit one earlier than the other to put real dollars in my pocket. QED initial size and expectation matters.
So yes, I would hold the $400 dollar position longer if my expectation was unchanged since I have more margin for error before the position goes negative.
It may all come down to trading style and what the market is currently offering relative to other things.
Cheers,
TS