SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
If the market had run much higher, the call vertical (obviously) would have lost money.
Question: How can owning the 790 time spread help you if the market runs through the 810 strike? It would just add to the loss.
My conclusion: This calendar was not a hedge. It was a totally independent position.
Mark
I shouldn't call it a hedge to the vertical itself. I looked at the overall greeks, and decided to adjust it with the outlook that rut unable to break new high (around 801). It was an adjustment, not a delta neutral hedge. My b.e. point was 805. If RUT run beyond 801, I would buy additional long calls (or another call calendar) to hedge again (I had some Mar and June calls already).
You can say that it was an independent trade. I also had a outlook that rut would settle between 780 and 800 (very likely a little bit below 790), and the calendar itself had a be point at around 780 and 800.
It is the first month I tried a new strategy based on the risk-based margin (though I am still trading under reg-T). I expect this strategy will give me around 3 times leverage under risk-based margin. With haircut (or new risk-based margin), my return would be around 9%.
Yip,
Ineed some exit strategy. I know when to get in but not how to get out (too greedy). So this is my new rules:
On CTM, ITM I will exit at (Premium *1/3) -0.10 c
On OTM: Exit=(Premium*2/3) - 0.10c
the 10c representsent cost of trading fees. So I will be guaranted 1/3 of the premium for CTM and 2/3 of the premium for OTM.
What do you think.?
I want to be able to take profit as they come so I don't end up fighting over a few cents close or at expiration. Also that will allow me to place my closing order the same day I opened it.
Ineed some exit strategy. I know when to get in but not how to get out (too greedy). So this is my new rules:
On CTM, ITM I will exit at (Premium *1/3) -0.10 c
On OTM: Exit=(Premium*2/3) - 0.10c
the 10c representsent cost of trading fees. So I will be guaranted 1/3 of the premium for CTM and 2/3 of the premium for OTM.
What do you think.?
I want to be able to take profit as they come so I don't end up fighting over a few cents close or at expiration. Also that will allow me to place my closing order the same day I opened it.
January was a pretty good month for my SPX trading. I had to swing into some runs up and down to get good premium but it paid off. I only regret not putting in larger orders and not being able to go back and get more after the fills due to fast moving markets. RUT data I already posted and that was an even better return for only a few days of exposure.
SUMMARY OF JAN SPX POSITIONS:
SPX SET 19 Jan 2007: 1427.92 -5.11
Front Month January Positions Held Through Expiration
50 SPX JAN CALL 1470/1480 Net Credit .89
10 SPX JAN CALL 1445/1455 Net Credit .59
6 SPX JAN PUT 1365/1375 Net Credit .83
110 SPX JAN PUT 1340/1350 Avg. Net Credit .77
Total Combined "Paper" Margin at Risk: $176,000
Worst Possible "Real" Margin at Risk (single sided): $116,000
Max Trading Days at Risk: 24
Net Profit: $14,008
% Return on Worst Case Possible Margin At Risk: 12.08%
Going out TGIFing to celebrate with my winnings.
Cheers,
TS
SUMMARY OF JAN SPX POSITIONS:
SPX SET 19 Jan 2007: 1427.92 -5.11
Front Month January Positions Held Through Expiration
50 SPX JAN CALL 1470/1480 Net Credit .89
10 SPX JAN CALL 1445/1455 Net Credit .59
6 SPX JAN PUT 1365/1375 Net Credit .83
110 SPX JAN PUT 1340/1350 Avg. Net Credit .77
Total Combined "Paper" Margin at Risk: $176,000
Worst Possible "Real" Margin at Risk (single sided): $116,000
Max Trading Days at Risk: 24
Net Profit: $14,008
% Return on Worst Case Possible Margin At Risk: 12.08%
Going out TGIFing to celebrate with my winnings.
Cheers,
TS
Hi Piccon,
In general a decent idea. In reality, not so good.
First, you must set a time limit. After all, making that 1/3 (or 2/3) after one week is great, but if it takes 3 weeks you might want to reconsider.
Second, in my opinion, one important factor in determining whether to close a near-term position is the availablity of spreads that meet my criteria in the following month's expiration.
If there is nothing attractive, I may hold on longer - assuming the near-term r/r is satisfactory.
OTOH, if there are spreads that are extremely attratcive with great r/r, then I'd be more eager to close the near-term and move out one month.
In your case, you would be more interested in knowing if the market is OB or OS so you could go out one month to take advantage of those larger credits.
And, IMHO, it's sseldom a good idea to 'fight over' those last few cents.
Mark
I think Mark's answer contains the real answer for you on closing your trades early. You are using a method to determine when you think the market is overbought or oversold. Those conditions are when you look to enter a trade. Why are you not using the exact same conditions to exit your trades?
If you enter puts when you feel the market is near a bottom, what better time to exit than when you are entering your calls because you think the market has topped. If the move up happens fast, you win on deltas. Maybe you will only get 75% of the original credit, but you got it fast, and that's never a bad thing. If the move up happens slow, you win on theta and might collect more of the credit to compensate for the extra time and risk. If the market moves down...that's a different discussion
Long story short: Exit your puts when you enter your calls and vice versa.
If you enter puts when you feel the market is near a bottom, what better time to exit than when you are entering your calls because you think the market has topped. If the move up happens fast, you win on deltas. Maybe you will only get 75% of the original credit, but you got it fast, and that's never a bad thing. If the move up happens slow, you win on theta and might collect more of the credit to compensate for the extra time and risk. If the market moves down...that's a different discussion
Long story short: Exit your puts when you enter your calls and vice versa.
On CTM/ITM you might consider closing when the PoP hits a certain low point. Say 30% or something depending on your mentality.