SPX Credit Spread Trader

[yip1997]

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 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.

RM,

Did you refer to static hedging here (i.e. open a debit spread on top of credit spread in the same time)? If yes, I agree with you.

However, as time passes, if my credit spread doesn't look good, I will choose hedging it by adding one leg instead of closing or reducing the size of the credit spread. By using one leg addition, you don't lose as much slippage as closing both legs of the spread.

I understand it is easier to manage a clean book. I had a problem of managing a book with over 20 legs this month because I kept adding legs to hedge against my existing positions as the market condition kept changing everyday.

I don't know exactly if it would be better for me to just close my "bad" credit spread because I haven't really made the comparison. I "think" I lost less "edge" by choosing to hedge it dynamically.

 

[yip1997]

Quote from domestic:

mark, what you explained is exactly what happens to me on a regular basis. it is emotionally not easy to spend premium; but it gets easier with time.

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.

Domestic,

I am really confused by your current strategy. You said you didn't use unlimited risk strategy. Now you mentioned you have more short than long. Is that considered unlimited risk?

I believe you have been doing very well. It was a lot easier for us to understand and follow your strategy when you showed your positions in your journal.

 

[domestic]

Quote from yip1997:

Domestic,

I am really confused by your current strategy. You said you didn't use unlimited risk strategy. Now you mentioned you have more short than long. Is that considered unlimited risk?

I believe you have been doing very well. It was a lot easier for us to understand and follow your strategy when you showed your positions in your journal.

sorry for confusing you,yip... i do have more longs than short. my short 670 and other shorts are in spreads. i have longs at 650/660/630 , etc.... no more naked....trading

i then put on other trades, such as debit spreads and long options. i am , like others constantly evolving.

 

[TrendSailor]

Quote from bklamco:

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.

I think this last market "blip"/correction/whatever is going to prove to be quite healthy overall to get us to the next leg up in a bull market. There was a lot of sidelined cash from last summer itching to get in. As well, a lot of US investors pulled back from foreign markets temporarily into bonds. The "bold" character or personality of that yield hungry cash is not going to want to sit idle too long in 10 Years Treasury notes at 4.5%. But I don't think we have a bottom yet. I will need to see relative strength (RSI) dip to around or through 40ish before I think we will have shaken out the heretics and false bulls and be done. I am also looking at some proprietary buy/sell ratio metrics I use for timing equity purchases. Those indicate we have a ways to go yet. I'll only tread lightly to the downside when we get good down runs of 20-30 point daily swings; and then only if I see convincing evidence that the bulls are going to strongly re-challenge along some new defensive technical line. Right now I don't think we have enough low-end technical ratification to form a convincing technical defensive line from which to rally the bulls should a determined bear assault suddenly rematerialize.

TS

p.s. The 200 day moving average [EMA] seems to be the current defensive line.

 

[MechTrade]

A subject that is pervasive on this forum is that of a "Black Swan Event".

And yet my perception of a BSE seems to deviate significantly from what others perceive a BSE to be.

So just for grins, would all who think they have a clear notion of exactly what a "Black Swan Event" is, be so kind as to share their notion?

Best... Mech

 

[bklamco]

I dont know other than a big market down turn. Does a 500+ point crash down in the Dow count as one?

Quote from MechTrade:

A subject that is pervasive on this forum is that of a "Black Swan Event".

And yet my perception of a BSE seems to deviate significantly from what others perceive a BSE to be.

So just for grins, would all who think they have a clear notion of exactly what a "Black Swan Event" is, be so kind as to share their notion?

Best... Mech

 

[RichardRimes]

500 points when the dow is at 12700 is much less of a BSE than 500 points when the dow is at 2800. I believe its an event expressed in % terms. A sudden (one or two day) event of perhaps 5% loss would certainly qualify as a black swan event in my book. I also don't believe the retail trader has a prayer in the event of a true black swan, that is why you never commit more than you can afford to lose in any one strategy and certainly have cash/bonds on hand to do what is necessary to try and limit the risk. Hedging or other more "neutral" strategies certainly help but will not completely protect in the event of a black swan. If I remember correctly during previous crashes trying to get your broker/order out there was next to impossible.

 

[bklamco]

Very good point 5% instead of points makes alot of sense. The average big move currently is 1.5-1.7% so 5% would be a big move.

The wording Black Swan seems to conjur up negativiity or perhaps along the same lines a the term he/she took a "Blood Bath" or in other words a loss. So in other words the meaning may me mores so in terms what happned to the trader in regards to the downturn in the market.

On the other hand if you get trader who is a pure short seller this is the ultimate dream market to make money really fast and quick. So while someone is taking a blood bath this trader would be making the trades of his lifetime and fast money.

Ok just my two cents here lets hear yours.

Quote from RichardRimes:

500 points when the dow is at 12700 is much less of a BSE than 500 points when the dow is at 2800. I believe its an event expressed in % terms. A sudden (one or two day) event of perhaps 5% loss would certainly qualify as a black swan event in my book. I also don't believe the retail trader has a prayer in the event of a true black swan, that is why you never commit more than you can afford to lose in any one strategy and certainly have cash/bonds on hand to do what is necessary to try and limit the risk. Hedging or other more "neutral" strategies certainly help but will not completely protect in the event of a black swan. If I remember correctly during previous crashes trying to get your broker/order out there was next to impossible.

 

[bklamco]

Black swan theory
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In Nassim Nicholas Taleb's definition, a black swan is a large-impact, hard-to-predict, and rare event beyond the realm of normal expectations. Much of scientific discoveries for him are black swans --"undirected" and unpredicted. The event most commonly considered a black swan is the September 11, 2001 attacks. This term refers to the unexpected nature and unpredictability of the sudden observance of black swans that coincided with the discovery of Australia. Previously, the commonly held belief was that all swans were white in color. [1]

 

[MechTrade]

Quote from bklamco:

Black swan theory
From Wikipedia, the free encyclopedia
Jump to: navigation, search... [1]

I posed the question, and am pleased that we have at least a spark of interest in the subject.

But what I really want is some feedback from the real critics of SPX Vertical Spreads... C'mon guys, you have been beating your chests for month after month about the lousy R/R's of Vertical Credit Spreads due to BSE's.

Mav... Ugly... Rally... and others. Sound off. And Murray, I respect your input above all others!

What in your mind is a defining BSE?

I'll step squarely in the middle of this cow pattie only after the real critics have committed themselves on the subject.

Best,

Mech