SPX Credit Spread Trader

YIP:

A ratio backspread is a directional trade where you expect a large move higher (in case of call spread). This is not the same as a vertical OTM SPX credit spread. If you expect the stock to make a huge move higher it is a nice way to use the short calls to help finance purchase of the long calls and get in for no cost but a margin of course.

MAV may trade the short side if the stock bounces around but above is the basic premise of a ratio backspread.

Quote from yip1997:

Mav,

Thanks for the example. Credit or debit makes no real difference in option pricing. This one seems too directional in nature. The only good part is +ve gamma. It doesn't look good to traders like me who get used to time decay but I'll put the effort to understand why you think otherwise.
More...
 
Quote from yip1997:

Mav,

Thanks for the example. Credit or debit makes no real difference in option pricing. This one seems too directional in nature. The only good part is +ve gamma. It doesn't look good to traders like me who get used to time decay but I'll put the effort to understand why you think otherwise.
More...

I just gave you an example. You said you wanted to see a backspread for a credit. That was one of them. You can trade them delta neutral or you can lean deltas.

Fine here is one that is OTM. Sell one march 147 call in spy for .55 and buy two march 149 calls for .15 for a .25 net credit. That's 30 handles OTM in the spoos.

There are a million combinations. The point is, it's not hard to put these spreads together. The idea is you have more juice to sell on rallies to increase your credit and buy back your short options when they are cheap. Yes, I'm over simplifying this, but trying to help you understand the jist of this strategy.
 
What about margin requirements?

Quote from Maverick74:

Any stock. Here, I'll take WSM.

34.76

Sell one March 35 call for 1.05
Buy two March 37.5 calls for .25

Net credit .55

Real prices.
More...
 
Quote from aa35360:

Mav,
Given IV skew on indexes, do you find it difficult to buy put backspreads for a reasonable price?
ST
More...

This thread is moving away from the orignal question.

There was a questuion about backspreads and a response. No recommendtions.

You cannot buy index put backspreads for a reasonable price.

Mark
 
Coach and Mav,

Thanks for the explanation for the backspread. I wanted to know the market conditions that you opened and adjusted (or closed) it, and both of you offer a very clear explanation.
 
one common place I have seen backspreads is using LEAPS. You can put on the position for a net credit and small margin requirement and let it run for a long time waiting for an explosive move higher (calls for example). Cheap way to go bullish.
 
I used it as an adjustment strategy (not a core strategy) for my ratioed diagonal.

If you recalled that I had a Feb 800/June 900 1:3 diagonal, i adjusted it by buying back Feb 800, and selling 2x number of 810 contracts.
 
Quote from dagnyt:

You cannot buy index put backspreads for a reasonable price.

Mark
More...

Hi Mark, agree, which is why i prefer to do ratio spreads on the PUT side and backspreads on the CALL side.

Tiny positions that im dipping my toes in

01/26/07 ES - 1431

BOT 1 APR 1370P - 10.25
SLD 2 APR 1340P - 6.75
NET CREDIT 3.25

Currently have around 40% profit. Thinking of closing as APR ex is still far away and shit can happen in that time. However it could be good if ES approches my 1370 long strike very close to ex. With plenty of time left like now, thats not good.

On the call side i have


02/01/07 ES - 1434

SLD 1 APR 1450C - 4.35
BOT 4 APR 1470C - 0.75
NET CREDIT 1.35

With this i would like ES to move up fast past my short strike with plenty of time remaining. But as luck would have it, it hovered around 1450 last week and that wasnt good. Have bought back my short strike for 2.00 on Mon when ES fell for the 2nd consecutive day. Whew ! My short strike was as high a 12.00 when ES was around 1453. 1470 strikes wasnt helpin much with little time remaining. IF there was more time left my position would have been healthier.

Just sharing....feel fee to comment good or bad....anyone

I also like zero cost diagonals. Which is in between Sailing's and Mark's. Did some debit diagonals like Sailing's and lost money both times :(

scoobie
 
You must log in or register to reply here.
Back
Top