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SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Burr to add to what Cache is saying...much depends upon your opinion of the market going forward, and how sure you are of it. The basic tenent of an IC or credit spread is to pick a high probability target and hold.
You could consider buying a B-fly to roll down to 1340/1350 which would be pretty cheap then offset the cost with a call credit spread at about the same delta as the 1350. The odds are pretty good we will not see a 100 pt drop of month over month expiration. I believe you'd have to go back to 2002 to find that...you might check it out.
Remember that theta kicks in big time the last 10-14 days so waiting out this weekend and looking at your options and making a plan would be the thing I would do.
You could consider buying a B-fly to roll down to 1340/1350 which would be pretty cheap then offset the cost with a call credit spread at about the same delta as the 1350. The odds are pretty good we will not see a 100 pt drop of month over month expiration. I believe you'd have to go back to 2002 to find that...you might check it out.
Remember that theta kicks in big time the last 10-14 days so waiting out this weekend and looking at your options and making a plan would be the thing I would do.
Quote from jeffm:
Nice work MT. Give yourself some credit for a well handled trade. You put on a bull put spread near the high, and you closed it for a profit after a 50 point sell off. The mouse ears and a little bit of intraday timing served you very nicely.
Much more important than the profit, you took the steps needed to preserve your account. You could easily have done the "hold and pray" routine. And that might have worked. Or you might have been crushed in the next few days. Instead you took control of your own fate. Well done.
Would you help me understand what he did--- what is meant by "mouse ears". I am still learning the slang.
Seems like some smooth moves that would be good to know.
Thanks
Quote from Drofman:
Would you help me understand what he did--- what is meant by "mouse ears". I am still learning the slang.
Seems like some smooth moves that would be good to know.
Thanks
"Mouse Ears" refer to a visual depiction on a risk analysis graph of the position.
Go to http://www.cboe.com/LearnCenter/webcast/archive.aspx
and look at Dan Sheridan's Income Generation series, particularly the Iron Condor presentation.
Dan illustrates the use of mouse ears which are visually represented in his presentation.
Then, if you don't have OptionVue or a ThinkorSwim account, go to ThinkorSwim.com and download their trading platform for a trial run. You can then construct the trade and see the visual yourself.
The ears may have contributed some to the outcome of the trade, but it was the sequenced unwinding of the position that contributed the most to the outcome. It could have been ugly.
Quote from yip1997:
Can we just hedge the drop by buying VIX future?
I'm sure not comfortable buying VIX futures in the high teens. The problem with this as a hedge is that the spikes that will hedge your port are very short lived. A nice drop that will send your OTM short ITM will result in a VIX spike for sure. But lack of follow through selling and an uneventful period after the drop will cut the VIX gains in half.
When using the VIX futures to hedge cheap gamma you have to be able to capture the VIX gains at their peak, which is very hard to do.
I think Big Ben causes a bit of a rally tomorrow that will be completely erased monday. That said, I really like the FEB 1430/1440 bear call tomorrow. I sold the SPY counterpart (143/144) today and got a great credit for it.
One thing to remember about this situation for those who might be holding for a bit more upside to sell bear calls. A 10 pt rally will result in at least -100bp vols. The credit recieved will be almost identical before and after the positive print.
Just something to think about. VIX was about 18 when I sold my bear calls. I had to leg in because when vols get crazy spreads don't get filled easily.
One thing to remember about this situation for those who might be holding for a bit more upside to sell bear calls. A 10 pt rally will result in at least -100bp vols. The credit recieved will be almost identical before and after the positive print.
Just something to think about. VIX was about 18 when I sold my bear calls. I had to leg in because when vols get crazy spreads don't get filled easily.
Quote from Cache Landing:
One thing to remember about this situation for those who might be holding for a bit more upside to sell bear calls. A 10 pt rally will result in at least -100bp vols. The credit recieved will be almost identical before and after the positive print.
That's not true. With a steep negative call skew in most indices, vols will actually rise on rallies as a result of the vol skew. Yes, the ATM vols will drop, but the skew floats.