SPX Credit Spread Trader

[MechTrade]

Quote from uglyboy:

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.

Ugly & Rally,

Did either of you read my post about exiting a FOTM bull put spread during the heat of the battle Tuesday afternoon?

The point of this post is not to brag, but rather to demonstrate that conventional wisdom should always be viewed with at least a little skepticism.

My low vol vertical was put on 11 days earlier for a measly net credit of $344.

Legging out during the meltdown yielded an unexpected profit of $3500.

The short leg was causing the heartburn, so I used a mkt order to cover it. (Not the way we prefer to place our option orders, but that position required immediate attention and I didn't want to waste time dickering with the MM's).

Once I was out of the short position, I went into trading mode, where the other three long legs were exited over a period of about 30 - 45 minutes using limit orders. And while the SPX was frothy during that period, my orders were executed between the B/A. The trading mode brought home the bacon.

 

[TrendSailor]

Impressive market resiliency & power today to reverse that undertow to come back this strong. Wondering if I should be thinking about closing out my CALL credit spread at 1500/1510 for .1 debit before it soars back?
>;->

TS

 

[kalikahuna]

I closed out my SPX 1500/1510 call spread already....to open another RUT 830/850 spread


btw...nearly crapped my pants when the SPX was @ 1385-1383...closed out my 1385/1370 put spread for a painful loss, but, OX live help did help me get close the the mid of the b/a spread...we'll see if I played chicken with the market and loss,or cut my losses before the storm.

 

[TrendSailor]

Quote from kalikahuna:

I closed out my SPX 1500/1510 call spread already....to open another RUT 830/850 spread

In spite of the market physchology change and global coupling that is still ongoing (which may very well redefine all new technical levels) I remained confident in RUT/IWM support at 78. But that opening rip down made the risk of an assignment real. So I closed out my March PUT IWM 76/78 for a 30% loss on the first run back up.

It stings and I "probably" would have been OK within a few hours or days but I am still nonetheless happy to now not have to be further distracted by the possibility of an early assignment while I am busy managing other things. In my book, mitigating and simplifying trading distractions is a valid methodology that can at times help offset taking other unnecessary losses.


Good Luck & Good Trading,
TS

 

[kalikahuna]

One thing I learned this week is to close a spread when you have made most of the profit from it and not risk the whole margin for the last remaining fraction of a point and commish.

On monday, my SPX 1385/1370 put spread had made most of its profit, between time decay and the run up from to 1459. I basically left it there cuz I thought I was completely safe and no need to close out and pay the commission and wanted to get the last .3 or so of the spread....Monday is now looking like an excellent time to have closed and taken profits....hindsight...20/20...blah, blah.

 

[dagnyt]

Quote from kalikahuna:

One thing I learned this week is to close a spread when you have made most of the profit from it and not risk the whole margin for the last remaining fraction of a point and commish.

There is much more to it than that. By closing early, you free up risk capital for new, better positions. Positions that can earn much more than the dime (or quarter) that remains in the first posiiton. And, the new posiiton can be entered just as far OTM as you want to be - no need to be tied to the strikes of the old position.

Mark

 

[burrben]

Looking for a little good advice. I stepped in front of the truck a few days back and put on a
100x1360/1350 SPX PUT Credit Spread for 0.50.

Currently to close this spread it would cost 1.00mid price.

Now that the SPX is back in the positve at 1407. I'm thinking of putting on some hedges to protect my short 1360. Just wondering what some opinions would be of what hedge to put on.

-Long 1370 SPX Puts?
-Long 137 SPY Puts?
-Short the ES?
-Pay up and close out the 1360 and hold the 1350 long?
-Not do anything for 14 trading days.

Thanks!
Burrrrrrr....

 

[Crucis]

I'm not at the level of Rally, Mark or Coach, but until the market settles, I'm sitting out. I was fortunate and went to cash last week.

Cru

Quote from burrben:

Looking for a little good advice. I stepped in front of the truck a few days back and put on a
100x1360/1350 SPX PUT Credit Spread for 0.50.

Currently to close this spread it would cost 1.00mid price.

Now that the SPX is back in the positve at 1407. I'm thinking of putting on some hedges to protect my short 1360. Just wondering what some opinions would be of what hedge to put on.

-Long 1370 SPX Puts?
-Long 137 SPY Puts?
-Short the ES?
-Pay up and close out the 1360 and hold the 1350 long?
-Not do anything for 14 trading days.

Thanks!
Burrrrrrr....

 

[TrendSailor]

Quote from dagnyt:

There is much more to it than that. By closing early, you free up risk capital for new, better positions...
Mark

Agreed - closed out all my original FOM CALL spreads at .1 debit for descent wins. Now I want to try to take advantage of high VIX/vol to toss this bad bear a substantial bone closer in but at safe distance. Maybe I can get it to run back north away from my short PUTs that are still at risk.

[editing - to reduce size]
TS

 

[Cache Landing]

Quote from burrben:

Looking for a little good advice. I stepped in front of the truck a few days back and put on a
100x1360/1350 SPX PUT Credit Spread for 0.50.

Currently to close this spread it would cost 1.00mid price.

Now that the SPX is back in the positve at 1407. I'm thinking of putting on some hedges to protect my short 1360. Just wondering what some opinions would be of what hedge to put on.

-Long 1370 SPX Puts?
-Long 137 SPY Puts?
-Short the ES?
-Pay up and close out the 1360 and hold the 1350 long?
-Not do anything for 14 trading days.

Thanks!
Burrrrrrr....

First off, I don't expect us to get down to 1360 by then, but that is beside the point. Long the puts from here isn't horrible as a drop to 1360 would result in vols in the mid 20's. You'd have delta and vega gains. OTOH, those puts aren't very cheap now with vols already in the upper teens.

You could just face the music and realize that the original position was bad. Most times the best fix is to simply offset and wait for a good entry later. That is of course unless your strategy is based on probability. Such strats usually require holding till expiry when selling gamma.

Anyway, the best actual hedge from here is probably long spy puts. They'll make money faster and lose money slower than other options.

Just one more opinion from me. I prefer to buy whatever strike is the bottom of the vol smile. When you buy FOTM puts the skew is working against you. If you buy at the base of the smile (usually close to the ATM strike) you take full advantage of the smile. There is more to a hedge than simply getting the options a cheaply as possible.