SPX Credit Spread Trader

[domestic]

Quote from scoobie27:

No worries, your answer like your posts are always interesting.

Its probably skill and patience combined with luck. One might think that ones safe and patting themself on the back putting on Credit PUT spreads after the recent falls, but what if there's another few 60 pts days in the coming weeks ? Just something to ponder...

Yes im also leaning toward using some of my credit to buy debit spreads or straight longs at the same time the Credit spreads are written. It becomes sort of like a ratio put spread. Not when the market is heading towards ones shorts and one feels threatened. I think its too late by then. I think DV is also doing this when she mentions putting on hedges with her credit spreads at initiation. Remember reading it a few few posts back.

maybe i am less greedy than others
:eek:

my shorts for april are 670 with er2 @784.60. a 60 point move more would put me 50pts out. to me , i received good money for the month. i cannot understand why others go much closer. i stay out of bad neighborhoods.......

 

[dagnyt]

Quote from domestic:

...it is emotionally not easy to spend premium; but it gets easier with time.

Depending on which strikes you spread, it can be painless.

Example. Let's say you are selling the 730/720 put spread. If you decide to buy some (smaller number than sold) 740/730 put spreads, the out of pocket cost can be small.

To make up some numbers, say you want to sell 10 spreads (or multiples thereof) and buy 3 spreads. Put on the position in 2 steps:

1) Buy the 720/730/740 butterfly 3 times

2) Sell 7 put spreads

Done: 3 x 13 x 10

The butterfly is not expensive. It's much safer to pay the offer on the fly than it is to try to leg into these positions.

But, if you prefer to time the market, you could sell 10 spreads and buy 3 spreads later when the market is higher, or IV has declined, or the spread price has dropped due to time passage. Obviously you would not own the 3 spreads if the market immediately declined further.

Mark

 

[dagnyt]

Quote from domestic:

maybe i am less greedy than others
:eek:

my shorts for april are 670 with er2 @784.60. a 60 point move more would put me 50pts out. to me , i received good money for the month. i cannot understand why others go much closer. i stay out of bad neighborhoods.......

There are excellent reasons for choosing CTM spreads rather than OTM spreads. This is a topic that generted a great deal of disussion at one time.

I'm wavering, but for the present, I'm still in the OTM camp.

 

[rallymode]

Quote from domestic:



rally, why can't debits with credits just be looked at as separate trades that ultimately may effect the p/l in one way or another? i was long er2 745 and short er2 685 for march. of course i had many more 685's, but i cashed out on the 745's bigtime. the 685's expired today.

Because you are wasting edge. I don't want to get into synthetics as that has been beaten to death but generally you want to try to have as few legs on as possible and make as fewer adjustments as possible in order to achieve your desired risk exposure. With an instrument like the SPX and RUT, i am surprised this doesnt get mentioned more. Nothing beats running a cleaner book. You guys aren't trading with order flow, you should be holding onto as fewer strikes as possible instead of adding positions on top of one another to offset risk.

 

[domestic]

Quote from rallymode:

Because you are wasting edge. I don't want to get into synthetics as that has been beaten to death but generally you want to try to have as few legs on as possible and make as fewer adjustments as possible in order to achieve your desired risk exposure. With an instrument like the SPX and RUT, i am surprised this doesn't get mentioned more. Nothing beats running a cleaner book. You guys aren't trading with order flow, you should be holding onto as fewer strikes as possible instead of adding positions on top of one another to offset risk.

it sounds good to have a "clean" book; but are you in any given month completely short or completely long? you must have positions offsetting others?

my debit spreads lose 9 months a year; but without auditing my book right now, i am certain to being up overall.

there must be other professional option traders or retired pro's who trade similarly with success.

i would be interested in knowing your opinion on risk's trading. does he give up some positive edge to hedge his trades at all? or are all the trades that have multiple positions all biased in one direction?
your honest opinion please....

 

[dagnyt]

Quote from rallymode:

... generally you want to try to have as few legs on as possible and make as few adjustments as possible in order to achieve your desired risk exposure... Nothing beats running a cleaner book. You guys aren't trading with order flow, you should be holding onto as few strikes as possible instead of adding positions on top of one another to offset risk.

Hi Rally,

I agree in principle, that a clearner book is easier to manage.

Assuming that risk is under control, I choose to sell some 750/740 put spreads in some random index.

Time passes, the market declines and I decide it's now appropriate to sell the 720/710 put spread.

Are you suggesting this be avoided in order to 'run a cleaner book'? Do you believe I must choose between adding to my 750/740 spread and doing nothing at all?

Or does your comment only refer to new posiitons that offset some risk?

Mark

 

[RichardRimes]

Quote from rallymode:
, you should be holding onto as fewer strikes as possible instead of adding positions on top of one another to offset risk. [/B]

Thats interesting because it is opposite to what has been advised by some of the TOS (ex MM's) do advise. They actually DO advise opening new positions to reduce risk. You lose so much in slippage in trading the SPX that I've come to the conclusion if I can afford to I will let as many position's (legs) expire...if they have been profitable and we are very near expiration. It may not be clean but I do save hundreds of $$ or more per expiration in commissions.

 

[dagnyt]

Quote from RichardRimes:

... You lose so much in slippage in trading the SPX that I've come to the conclusion if I can afford to I will let as many position's (legs) expire...if they have been profitable and we are very near expiration. It may not be clean but I do save hundreds of $$ or more per expiration in commissions.

It's not so easy to define 'if I can afford to.' Is saving 'hundreds' worth the risk of losing tens of thousands? Each of us must answer that question for himself. For me, the answer is 'no.'

I am sympathetic to the dilemma of trying to close near-term options, but as you know, refusing to cover cheap options can lead to devastating losses - all with so little to gain. That doesn't mean I pay just any price. I enter my bid and wait. This expiration I had several positions expire worthless, as no one hit my bids - but it's more common for me to be completely out of the near-term when expiration week arrives.

Just my opinion. Not an argument.

Mark

 

[rallymode]

Mark, yes, i was referring to some of the posts that discuss hedging the risk by overlapping spreads.

Donna, of course TOS will tell you to open as much legs as possible, need i really address that? BTW, you arent saving it, you are giving it up with the new position or is that put on at +edge and commish free? Sometimes it seems like they have brain washed you. LOL

 

[bklamco]

Quote from scoobie27:

Need some advice pple.....

If you go to BIG CHARTS and look at the SPX chart for the last 10 years. you'll notice that SPX fell from 1500 to 800 in the space of roughly two years. From mid 2000 to mid 2002 !!! That is a mighty fall :eek:

My question is, won't all we credit spreaders on the PUT side get killed in that scenario if it happened again ?

All responses is greatly appreciated as im sure we wouldn't like those market conditions to happen again and im curious how you would deal with it. I would say thats pretty close to being black swannish.


scoobie

I'm new posting here but I have been reading this thread for ages...

I dont have a crystal ball, but open up a weekly chart for say 10 spx years and plug a 62 sma into it. That should give you a really good idea where the downside will stop at the 62sma. If it goes past that we may be onto something else. Its an election year historically stuff should pick up I read this in SCO magazine they have all the stats and stuff about how an election year performs back to 1938. I did not take any hits on this downturn as I stayed on the Call side with a 1500/1510 credit spread and bought back for a 10 on the big black swan. I've been out of market since then and I am looking for ideas of what to do now. I thought of getting direct debit puts or spreads but based on the chart above dont see much more downside to go. Or just get fotm Call credit spreads only for april07
1465/1470? 1470/1480 if I can find premium.