SPX Credit Spread Trader

[TrendSailor]

Quote from Cache Landing:

As it played out for the remainder of the day it looked like 1407 was the hangup in both directions. Resistance still at 1410 and without any upside catalyst I'm still seeing a drop tomorrow. We'll see if my new crystal ball is right.

What you say sounds reasonable but personally I hope you are wrong since I need just a bit more motion to the upside to unwind or reduce some positions.

As far as an up catalyst what I am personally hoping for is a transparent natural shift to quality & defense (e.g. low PE, dividend stocks equities) over the next few trading days. My thinking is that this will tend to push up the OEX (larger caps). Frankly, I would have put on some put spreads here on OEX if I was not getting thin on trading capital/reserve. Anyway, I am then hoping that this smaller/higher-quality segment tends to pull up the upper tier of the SPX to stretch it up another 5- 10 points on that effect alone to give us a higher support level. We will see if that is wishful thinking.

There are some bargains to be had in the higher quality/consistent-growth small caps too that may benefit if people are not overextended on capital to take advantage of it.

The other thing I am watching for is the possibility of a strange artifact to the SPX put-call ratio as people unwind FOM calls to free up trading margin. That may give a false-negative sentiment.

Anyway - its good to see some stability and rationality starting to reform from here.

Good Luck & Good Trading,
TS

 

[dagnyt]

Quote from MechTrade:

TS,

Do you have any concept of how many words you use... to say so little?

Mech

Would you please send this meassage one more time.

His apology made me think he understood the first time around. Perhaps another tap on the noggin would prove useful.

Much thanks,

Mark

 

[MechTrade]

Quote from dagnyt:

Would you please send this meassage one more time.

His apology made me think he understood the first time around. Perhaps another tap on the noggin would prove useful.

Much thanks,

Mark

No.

I meant it when I said that I would make an extraordinary effort to avoid any further commentary. (Of course what I meant was 'negative commentary').

This SPX Credit Spread forum is a narrowly focused thread, the subject of which I have an interest in.

When I come here, I don't really want to have to muddle thru Off Topic posts. Rather, I want to learn both positive and negative aspects related to the subject of the forum. I don't want to make any enemies here.

TS means no harm with his/her posts. (It is difficult to make gender determinations in Inet threads). So all I wanted to accomplish was to express my desire that the posts stay on topic.

And this post is of course... Off Topic.

 

[crashbutnotburn]

Wish I had sold a boatload of those March 1495/1505 SPX spreads- had a feeling something was about to happen but I was too cautious with margin and only sold 10 - darn....

 

[tyrant]

Quote from dagnyt:

That means these options have very low volume. No individual investors (the public) trading.

"Paper" refers to orders that are printed on paper and carried into the trading pits by runners and handed to floor brokers for execution.

No public paper means that if I want to trade these specific options, I trade with the MMs. Thus, cannot take legs.

Mark

Hi Mark,

Why then do you choose to trade products with no public papers? As it is, the bid/ask is already very high and it helps if you can bargain for a good price. And, with such huge spread, isn't the odds highly stacked against the sellers if and when they decide to cover? That is, in the long run, can sellers of premiums expect to overcome slippage and commission to come out ahead? Any suggestions on improving?

Thanks

 

[rallymode]

Quote from tyrant:

And, with such huge spread, isn't the odds highly stacked against the sellers if and when they decide to cover? That is, in the long run, can sellers of premiums expect to overcome slippage and commission to come out ahead? Any suggestions on improving?

Thanks

It doesnt matter if you are a seller or a buyer. You are still facing the same obstacle. When things go nuclear, the mm's widen the vol inputs in their bots and will never fill you inside until the dust settles. No one will take the stat vol risk just so that you can get a fill. Theoretical price doesnt mean much when vols explode 100% so inside fills are rare. Do you think the MM's or anyone else for that matter care about trading for edge on days like yesterday?

Having said that, if you are short premium, the prudent thing to do will be to be proactive in your hedges and allow for the wide spread ahead of time. You generally want to put yourself in a position where you will not be forced to unload it as that always tends to happen at the worst time in vol terms. Buying vols against a short gamma risk hole is a good option. If you think about this for a second you will realize what a bad play the FOTM put credit spread is. Perhaps the worst play ever. :eek:

 

[uglyboy]

Quote from rallymode:



Having said that, if you are short premium, the prudent thing to do will be to be proactive in your hedges and allow for the wide spread ahead of time. You generally want to put yourself in a position where you will not be forced to unload it as that always tends to happen at the worst time in vol terms. Buying vols against a short gamma risk hole is a good option. If you think about this for a second you will realize what a bad play the FOTM credit spread is.

Rally's advice is a recipe for long term survival.

If you are a Condor Cultist and you're setting up condors in low vol enviroments (i.e. last week) you're paying the life insurance for the guy at the other side of your trade. I think a lot of people on this thread learned this lesson yesterday.

 

[rallymode]

Quote from uglyboy:


If you are a Condor Cultist and you're setting up condors in low vol enviroments (i.e. last week) you're paying the life insurance for the guy at the other side of your trade.

Exactly, and to give an example. I had 2 different fotm put debit spreads going into yesterday. Both gained nearly 1000% but the edge was 7 handles wide. Just because i was a buyer doesnt mean i had it easy unloading it. Guess where i got filled? That's right, just off the bid. If you want out on a day like yesterday, you better be prepared to compensate the MM for the stat vol risk.

 

[dagnyt]

Quote from tyrant:

Hi Mark,

Why then do you choose to trade products with no public papers? As it is, the bid/ask is already very high and it helps if you can bargain for a good price. And, with such huge spread, isn't the odds highly stacked against the sellers if and when they decide to cover? That is, in the long run, can sellers of premiums expect to overcome slippage and commission to come out ahead? Any suggestions on improving?

Thanks

Hi,

Good question.

I would rather own the position I want to own, if I can get an acceptable price, and worry about closing that position another time.

I don't want to trade more active options just to help me get a better fill. Not worth it. Besides, to get that better fill, it may be necessary to take legs. I prefer not to do that either.

Thus, I pass on potentially better fills and take what I can get. Months ago, I entered spread orders near the mid-point. Today, I enter much closer to the MMs bid. At least I get to time my entries, so the less than desirable execution is compensated for by the fact that the market has moved in my direction before I enter the order (sell call spreads on rallies and put speads on dips).

This style is definitely not for everyone. If I were trading CTM spreads, then yes, I would be trading options with more public order flow. But, I prefer further (but not too far) OTM strikes, and these have much less public paper.

Mark

 

[jj90]

rally, I assume you are advocating more wings further out to be +vega and +gamma, essentially a backspread. My question is what is your opinion on how much the backspread should be leaning on the gamma ratio so if shit hits the fan again the position quickly turns -gamma to +gamma?
I know Mav likes a 2:1 ratio, and IMO I have nothing against selling FOTM spreads cause I always buy wings further out, but after seeing yesterday I wonder if my projected hedge wings aren't compensating enough?