SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
I'm going to agree and disagree
Low volatility in itself is no reason IC's can't work. (2004 & 2005 were great) The problem becomes a market environment such as a prolonged bull run with a sudden abrupt end. I agree that really since Sept/Oct the market has not been co-operative for the IC strategy. I have certainly changed my strategy and am using the plain old regular condors and butterfly's and even debit spreads to provide more balance in my portfolio. While I'm still writing OTM credit spreads I put on my hedges FIRST! This gives me ample ammunition to make adjustments that can preserve my credits.
No one's opinion here is useless. That is the purpose of the forum, and I've seen Coach get battered repeatedly with reasonable arguments against the verticals.
As you said, the outcome was in fact some combination of luck and skill. When I pulled the trigger, we were in fast (but not too fast) mkt conditions (not Black Swan) combined with a strong direction... ie. a tradeable situation.
And as you say, there is a major flaw in the low vol condor strategy... which in my mind is a true Black Swan event. But isn't that the same flaw in a high vol condor strategy?
The argument that Rally made was:
"Theoretical price doesnt mean much when vols explode 100% so inside fills are rare."
and
"When things go nuclear, the mm's widen the vol inputs in their bots and will never fill you inside until the dust settles."
But once I was out of the short put, I did manage to get filled inside the spreads on my long puts as I wound down the position. Maybe not Mid, but better than the bid.
And Rally said: "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."
Well maybe... and maybe not. I'd really appreciate being pointed in a specific direction of options trading (with examples) that is better.
Baring a BS event I think a trader can control his/her risk in most cases with verticals.
I offer my opinion from the perspective that I would never risk anything close to a substancial portion of my account on an SPX vertical.
A couple of final points:
The fact that I put myself in front of the train to begin with by putting on the condor, forced me into being a player when drop occured on Tuesday, resulting in a positive outcome.
I am a skeptic about many if not most axioms related to trading. And being the skeptic I often times like to try things that look like they have an acceptable risk even though conventional wisdom warns against it.
Too many words.
Have a nice weekend.
There is no such thing as the best strategy. All the strategies make money in the right conditions and when managed properly. A credit spread is no better or worse than any other position managed properly. A credit spread may have better/worse risk/reward profiles than other strategies but it is all in how you use it.
There are many funds out there trading credit spreads who make good money in good and bad markets because of risk management. If a sharp decline in the market wipes out an account, then the person trading was ignoring good risk management. You can get hurt with credit spreads, like you can with many strategies and one must understand the actual risks involved.
There are many funds out there trading credit spreads who make good money in good and bad markets because of risk management. If a sharp decline in the market wipes out an account, then the person trading was ignoring good risk management. You can get hurt with credit spreads, like you can with many strategies and one must understand the actual risks involved.
Quote from RichardRimes:
I'm going to agree and disagree
I agree that really since Sept/Oct the market has not been co-operative for the IC strategy. I have certainly changed my strategy and am using the plain old regular condors and butterfly's and even debit spreads to provide more balance in my portfolio. While I'm still writing OTM credit spreads I put on my hedges FIRST! This gives me ample ammunition to make adjustments that can preserve my credits.
RR - always keeping me on the straight and narrow!
The point I was trying to make is that ICs work fine as long as vol doesn't go up. The "advantage" is that you are being paid for a vol prediction (IV) that ends up being too high (i.e. greater than realized vol). This has worked well over the last few years ans vol has trended steadily down. However, the longer vol is low, and the lower it is, the more probable that it will go up, thus suddenly making the IC a negative expectation trade. You can mitigate this problem by legging in one vertical at a time, or by trading out skillfully, but that is separate from the expectancy at trade inception.
I have no problem with people trading ICs - I have done plenty myself. I just think that people need to realize that there is a time to place them (expectation of falling realized vols) and a time not to (expectation of rising vols). I'm also not trying to tell you to trade any way other than you see fit - each of us has unique skills and flaws. All I'm saying is that the math doesn't support ICs in last month's conditions.
Have a great weekend, and good luck Monday, which will be messy in my (still useless) opinion.
Saddle up!
UB
Every one expects it to be messy and nasty like the OCT 87 MOnday crash was after a bad Friday. Therefore I expect the opposite to happen. Volatile but perhaps more ado about nothing once we get to the close.
Yes like our buddy at Argus, remember him? The one with the proprietary bands? LOL
http://www.arguscapitalmanagement.com/performance.html
today was my first day of "not feeling great". i was long march er2 @ 730and short april @ 730/715/710 .
i did a stupid thing today when er2 was down 9pts. i sold my march inventory at huge gains; planning on buying some april longs on a bounce. that part did not happen. er2 is at 774.10 now. i will buy april longs on monday; most likely erasing all my gains on the march longs, but i will be more comfortable.
my short puts were put on after the 400pt dow drop. i was strictly short calls. what i did imo by shorting puts was, "trying to catch a falling knife".
quite honestly, i really hope for a rebound of some sort. i am not accustomed to being 44pts otm; especially when we dropped almost 60 already in er2.