SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Yipp,
How did you handle the rollercoaster last month.
It was wild for me, A lot of adjustments some not needed some needed. But at the end I managed to lose 5K and I am extremely satisfied.
I expect some losing month; the key is to lose small when losing and make big.
I made some mistakes and I am still learning from them.
But I still favor CTM over FOTM. I could have been broke by now if I was accepting 0.75-0.90 cents credit.
Until I can be proven the contrary, I will always go CTM and envelope it with some FOTM.
The combination works very well for me.
For the year I am up 15% even with my loss last month.
I learned a lot from it though.
piccon
How did you handle the rollercoaster last month.
It was wild for me, A lot of adjustments some not needed some needed. But at the end I managed to lose 5K and I am extremely satisfied.
I expect some losing month; the key is to lose small when losing and make big.
I made some mistakes and I am still learning from them.
But I still favor CTM over FOTM. I could have been broke by now if I was accepting 0.75-0.90 cents credit.
Until I can be proven the contrary, I will always go CTM and envelope it with some FOTM.
The combination works very well for me.
For the year I am up 15% even with my loss last month.
I learned a lot from it though.
piccon
piccon,
I lost about 8% from my high watermark (using NAV). I didn't close any FOTM credit spreads when it passed through my short strikes. Instead, I kept hedging (balancing my delta) by buying long term puts, and selling short-term puts and calls.
In the end, I lost from my long wings which I haven't closed yet. I realized about 3% of the gain, so I now have a carryover loss of over 10%.
I am trying to analyse if the way that I manage my book is reasonable.
For the last 2 months, I have been trying to sell CTM options, and buying FOTM longer term options.
I still don't know how to manage long wings. Say for example, I now have June calls and puts. If I don't sell these extra options at high IV environment, my profit from long puts will evaporate easily with a decline in IV.
That's why I don't buy front month. I stay within the month and adjust as necessary.
During the big drop, i opened some vertical call for April to balance my potfolio but I do that only with 15 days to go in the present month.
If you are doing CTM timing is important so opening June spread is no longer CTM as per say. CTM works with market direction. Today I know what the trend is and can take appropriate action but it's impossible to guess how the market will trade in the next 2 months.
For example I have Strikes that have been breached or about to be breached but I am comfortable with that.
If you sell March, Buy March if you wnat to trade CTM Vertical.
During the big drop, i opened some vertical call for April to balance my potfolio but I do that only with 15 days to go in the present month.
If you are doing CTM timing is important so opening June spread is no longer CTM as per say. CTM works with market direction. Today I know what the trend is and can take appropriate action but it's impossible to guess how the market will trade in the next 2 months.
For example I have Strikes that have been breached or about to be breached but I am comfortable with that.
If you sell March, Buy March if you wnat to trade CTM Vertical.
You are right. For CTM, timing is very important. A bad timing will likely cost you more than $1 for each contract. But a bad timing of OTM usually cost you a dime or two.
As I am bad in spot the reversal time, I might be better to continue with OTM till I learn the timing skill from you or Rally.
The problem with this approach is that you bought options RICH in VEGA at the precise moment that IV is high and youw ant to be selling, not buying VEGA.
To me, the lesson you should be learning from this is: If hurting from a substantial market move, if the move is up, then IV will probably be shrinking and buying longer-term options at low IV is a good idea.
But, when the markets are falling and IV is exploding - DO NOT BUY VEGA. The protection you need is gamma - and you were buying vega to sell more gamma.
Mark
A few message back a member asked for a definition of a Black Swan Event (BSE). Perhaps I can clear the issue. What happened on Feb. 27th was NOT a BSE. Stock market volatility is the result of a BSE.
BSE's are Sept 11th, 2001, The London Subway bombing in July 2005, The Madrid bombings in 2004, or they could be Tsunami's, political assassinations, or any unexpected - from out of now where event that causes immediate chaos in society to which the markets react.
One could question whether Katrina was a BSE since we knew it was coming 7 days before it hit. Plus we knew where it was going, etc. The aftermath was more of a BSE than Katrina itself.
So Feb 27th was unexpected but there was no BSE that caused it. We could all sit around and debate ad nauseam (sp?) what caused Feb. 27th - the Carry Trade, China, Sub Prime? A market that was over bought and ready for a tumble? But it wasn't a BSE.
The market reacts to a BSE but is not a BSE itself.
Feel free to add your own clarification or definition.
BSE's are Sept 11th, 2001, The London Subway bombing in July 2005, The Madrid bombings in 2004, or they could be Tsunami's, political assassinations, or any unexpected - from out of now where event that causes immediate chaos in society to which the markets react.
One could question whether Katrina was a BSE since we knew it was coming 7 days before it hit. Plus we knew where it was going, etc. The aftermath was more of a BSE than Katrina itself.
So Feb 27th was unexpected but there was no BSE that caused it. We could all sit around and debate ad nauseam (sp?) what caused Feb. 27th - the Carry Trade, China, Sub Prime? A market that was over bought and ready for a tumble? But it wasn't a BSE.
The market reacts to a BSE but is not a BSE itself.
Feel free to add your own clarification or definition.
Interestingly enough, the Tuesday drop of a max of 66 points or so on the SPX was far greater than the drop after the Madrid bombings and the London bombings. The true definition though becomes meaningless sine the underlying premise is that the market suffers an abnormal, out of distribution move. Also I believe a BSE is not just a one day abberation but general significant move.
Whether the move in question was a BSE can be debated but a 65 point move in week was certainly significant. However the way it was spread it the secondary drops were not sudden and swift so there was time to gain from the pullback or get out. I see a BSE as one that truly overtakes you due to the enormity of the move (post 9-11).
Whether the move in question was a BSE can be debated but a 65 point move in week was certainly significant. However the way it was spread it the secondary drops were not sudden and swift so there was time to gain from the pullback or get out. I see a BSE as one that truly overtakes you due to the enormity of the move (post 9-11).