Most option software analytics can model vol skew with change in price and change in ATM vols while maintaining the shape of the curve.
SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Most option software analytics can model vol skew with change in price and change in ATM vols while maintaining the shape of the curve.
That's also one of the positions I'm considering taking. I would sell 20 of my long 1350 puts at 4.90 and then buy 20 1365 puts for 6.20. The resulting position would look like
+20 1365
-100 1360
+80 1350
I have also attached the risk graph from TOS.
If the SPX expired above 1365, I would clear $2400
If the SPX expired between 1365 and 1360 I would make 12.5k
If the SPX expired between 1360 and 1358 I would make 0-10k
If the SPX expired between 1358 would lose $$
If the SPX expired between below 1350 I would lose 65K
All of the prices I used were post close prices so all the numbers will changed depending on the fills and prices. I kind of like this idea since the SPX would have to expire below 1358 to really lose $$. And you can always add more long 1365 puts for added protection.
How does that sound?
Burr
+20 1365
-100 1360
+80 1350
I have also attached the risk graph from TOS.
If the SPX expired above 1365, I would clear $2400
If the SPX expired between 1365 and 1360 I would make 12.5k
If the SPX expired between 1360 and 1358 I would make 0-10k
If the SPX expired between 1358 would lose $$
If the SPX expired between below 1350 I would lose 65K
All of the prices I used were post close prices so all the numbers will changed depending on the fills and prices. I kind of like this idea since the SPX would have to expire below 1358 to really lose $$. And you can always add more long 1365 puts for added protection.
How does that sound?
Burr
Would you mind explaining the mechanics of the trade you just mentioned? I not sure if I'm understanding what you mean by purchase a butterfly and roll down.
Wouldn't that trade be?
+50x1340
-100x1350
+50x1360
My current trade is:
-100x1360
+100x1350
Then I would have to:
Buy 50x1340'x
Sell 200x1350's
Buy 150x1360's
?
and sell a call credit spread somewhere in the 1400's?
I didn't price it out, but that seems like a lot of trading to me. Looks like I would make only lose $$ if the SPX was above 1445. All of this is of course depending on fill prices.
Attached is a graph
I would be very pleased to hear your opinons!
Thanks,
Burr
Wouldn't that trade be?
+50x1340
-100x1350
+50x1360
My current trade is:
-100x1360
+100x1350
Then I would have to:
Buy 50x1340'x
Sell 200x1350's
Buy 150x1360's
?
and sell a call credit spread somewhere in the 1400's?
I didn't price it out, but that seems like a lot of trading to me. Looks like I would make only lose $$ if the SPX was above 1445. All of this is of course depending on fill prices.
Attached is a graph
I would be very pleased to hear your opinons!
Thanks,
Burr
No...buying the B-fly means +100 1360 -200 1350 +100 1340..if you do this you are left with -100 1350/+100 1340 end of day cost right now is 0.0 which means you can do this pretty cheap...may be a dime or .20 cents. with futures up very do able.
selling the call credit spread in this case may be un-necessary but you can get a nice premium on call spreads right now with vols so high. you will of course then have upside risk. Again I would wait at least until monday or tues to do any adjustment. Time IS on your side.
edit. since you only received .50 I wouldn't do it unless it could be done for .10 or .15.
Just checked and selling the 1445/1455 call CS mid is 1.45 quite a bit more for the same delta as your 1350...although skew does understate the risk in call spreads. but say you go out to 1450/1460..thats mid .70 and under .10 delta...90% probabiliy..no additional margin required. personally if you don't have any call spreads I would give this serious consideration.
My experience over the past couple days says otherwise. Today for instance, we're talking about 3.00 change in VIX on a little more than 10pt SPX rally from the lows. Before the rebound the SPY MAR 143/144 mid was bouncing between 0.275 and 0.30 and after a +1.20pt jump the same spread was still 0.30 credit. We continued up the rest of the day and the mid is currently 0.32. We're talking about the equivalent of a little more than 20pt jump in spoos that yielded about 0.02 extra credit.
Right now they could sell the SPY 144/145 for 0.15 and if they wait till monday hoping for another 10.00 SPX jump, they will get the same spread for 0.15 after the jump. Granted a big jump would get them a better position, but the point still remains that any small rallies from here aren't going to add much to the credit.
Very good dialog guys on what some of our options are from here (no pun intended). Thanks.
Tuesday's "irrationalism" I think has now introduced average traders, government policy makers and financial institutions to the inherent realities (weaknesses & strengths) of financial contagion. For better or worse, this is the reality of the bold new global world we all trade in now. I think this risk is now more respected by us market risk underwriters (e.g. us gamma sellers). But thanks to recent events, going forward the market should reward substantially more premium for this ratified risk. That will be good for many traders here.
Personally I was very impressed at how strong our market pulled back up in 45 minutes after the huge opening down rip (SPX -25 points, 1.78%) on Thursday. That tells me there is still a lot of power in this bull. But I was almost as impressed by the viciousness of that initial sell-off . Have the bears had "their day" that is now over? No doubt going forward we can expect more attempts to reaffirm/retest.
Personally I am putting on my risk mitigation hat to do some real-time decisions in the saddle. The character of today's action is very important to me to form my final decisions. This week we had some excellent economic news & FED support but we also had some amazingly irresponsible political and media opportunists agitating the pot (at the worst possible time). There are more important economic reports coming out next week that could push us further one way or the other. Mid to long term I am bullish. But given the current hysterical political & media environment I am not comfortable that the market will normalize to find sound tecnnical support within this options period.
Good Luck & Good Trading all,
TS
Tuesday's "irrationalism" I think has now introduced average traders, government policy makers and financial institutions to the inherent realities (weaknesses & strengths) of financial contagion. For better or worse, this is the reality of the bold new global world we all trade in now. I think this risk is now more respected by us market risk underwriters (e.g. us gamma sellers). But thanks to recent events, going forward the market should reward substantially more premium for this ratified risk. That will be good for many traders here.
Personally I was very impressed at how strong our market pulled back up in 45 minutes after the huge opening down rip (SPX -25 points, 1.78%) on Thursday. That tells me there is still a lot of power in this bull. But I was almost as impressed by the viciousness of that initial sell-off . Have the bears had "their day" that is now over? No doubt going forward we can expect more attempts to reaffirm/retest.
Personally I am putting on my risk mitigation hat to do some real-time decisions in the saddle. The character of today's action is very important to me to form my final decisions. This week we had some excellent economic news & FED support but we also had some amazingly irresponsible political and media opportunists agitating the pot (at the worst possible time). There are more important economic reports coming out next week that could push us further one way or the other. Mid to long term I am bullish. But given the current hysterical political & media environment I am not comfortable that the market will normalize to find sound tecnnical support within this options period.
Good Luck & Good Trading all,
TS
