SPX Credit Spread Trader

piccon · Jan 16, 2007

Did close the 790/800 last Friday for break even and still have the PUT which is worth 0.20 now.

So for the trade I will make money in the wings 810/820 (closed), 740/730 (closed) and the PUT of the CTM 770/760.

I already opened some Feb Calls CTM and ITM but I will sit on the calls only. I will open PUT until I get a Buy signal from RUT.

Quote from yip1997:

piccon,

any update on your ctm verticals?

IV_Trader · Jan 16, 2007

Congrats , Mark !
I also belive that WS will spin any earnings , eco and FED's data to non-event and vols will stay low until biblical event occurs.

yip1997 · Jan 17, 2007

CTM/ATM spreaders,

I opened a calendar spread RUT Feb/Jan 790 Put last Friday, and I wonder how you will exit this trade (Sorry that I didn't have the exit strategy when I opened this trade). Will you hold the position and take the settlement risk? What will you do for the following cases?

Case 1: RUT stays above 790.
Case 2: RUT stays at 790
Case 3: RUT stays below 790.

dagnyt · Jan 17, 2007

Quote from yip1997:

CTM/ATM spreaders,

I opened a calendar spread RUT Feb/Jan 790 Put last Friday, and I wonder how you will exit this trade (Sorry that I didn't have the exit strategy when I opened this trade). Will you hold the position and take the settlement risk? What will you do for the following cases?

Case 1: RUT stays above 790.
Case 2: RUT stays at 790
Case 3: RUT stays below 790.

Hi Yip,

How's this for a radical idea: Close when you are either satisfied with the profit or dissatisfied with the then current risk.

Mark

yip1997 · Jan 17, 2007

Quote from dagnyt:

Hi Yip,

How's this for a radical idea: Close when you are either satisfied with the profit or dissatisfied with the then current risk.

Mark

Mark,

This is the problem. I am comfortable with the greeks for the overall portfolio. However I don't think the greeks tell the true picture.

For example, I had a theta of 600 yesterday, but that 600 didn't show up after one day even rut went down and IV increased this morning (I have -ve delta, and +ve vega, and it should show more than 600 profit in my book, but it only showed 200).

Is it generally true that the option model doesn't show the settlement risk (whereas the market does, and so the price of ATM options will price higher than the model)?

TrendSailor · Jan 17, 2007

Quote from dagnyt:

Hi Yip,

How's this for a radical idea: Close when you are either satisfied with the profit or dissatisfied with the then current risk.

Mark

Hmm, I don't want to speak for Yip but I see some pragmatic issues in implementing this advice Mark.

To the downside zero is a nice well defined number to assess the worst case floor risk. But to the upside the sky is the limit. So that makes it rather difficult to assess "how much is enough" profit given the "risk" of not getting anything close to what a position may ultimately yield. After all, one should not want to risk losing the opportunity to fully ride one's properly constructed reward curve as payment for being "right" would they? It would be such a shame to turn away early and miss that large pot of gold just waiting up just a little further out at the end of the rainbow in shangra la.

hehe

Just having fun on a very boring trading day and disappointed at the lack of volatility. Makes for a hard time setting up the Feb positions that I was planning for the day...

TS

dagnyt · Jan 17, 2007

Quote from TrendSailor:

After all, one should not want to risk losing the opportunity to fully ride one's properly constructed reward curve as payment for being "right" would they?...

Just having fun on a very boring trading day...
TS

Ok, I'll take the reply as being partially a jest.

My answer to your question is: YES. I am absolutely willing to trade the potential for a big win for a good win today. And by doing so, I prevent that win from becoming a loss.

I believe that 'the pigs get slaughtered' is very appropriate to options trading.

Mark

dagnyt · Jan 17, 2007

Quote from yip1997:

Mark,

... I don't think the greeks tell the true picture.

Dollars count also. The Greeks may tell you risk is acceptable to you, but sometimes common sense overrules and you take your money.

Is it generally true that the option model doesn't show the settlement risk (whereas the market does, and so the price of ATM options will price higher than the model)?

Option models do show SET risk. They do that by including that one extra day.

Because SET is often a bigger than average move, options are pumped (trade at a higher IV) - just as they are just before an earnings announcement.

Mark

piccon · Jan 18, 2007

If I didn't close my 790/800 calls, I would have been safe and I would have made a lot of money today as RUT is going back down. But Woulda, Coulda don't apply in options trading, you have to protect what you have as capital and not regret later.

I am still happy because I closed the Jan 790/800 and opened ITM FEB 790/800 and FEB 820/830 and they are both making money fast. This time no FEB PUT vertical to counter the advance of my FEB calls.

I will either close them or open PUT Spreads on oversold condition.

But this CTM, ITM, OTM combination strategy can make you money if TA is used because timing is everything.

Quote from yip1997:

piccon,

any update on your ctm verticals?

yip1997 · Jan 18, 2007

Quote from piccon:

I am still happy because I closed the Jan 790/800 and opened ITM FEB 790/800 and FEB 820/830 and they are both making money fast. This time no FEB PUT vertical to counter the advance of my FEB calls.

I will either close them or open PUT Spreads on oversold condition.

But this CTM, ITM, OTM combination strategy can make you money if TA is used because timing is everything.

Nice! A combination of ITM, CTM, and OTM is indeed a very good strategy.

I am still holding Jan 810/800 call and Feb/Jan 790 put. Will close the calendar after 3 pm today.

If you look at RUT for the month, it stayed at around last settlement price. Jan should be a good month for those who trade rut credit spread.