SPX Credit Spread Trader

You wake up in the morning and the futures are locked limit down. Holy sh*t, what am i going to do with all my short cheap/unbound gamma. It's ok, no worries, i will just buy puts at the open. The market opens and the vix is over 30 and there is a small lot on the ask at 40 vols. Before you figure out whether to buy it, someone else snags it.

There is your black swan. 2/27/07 was nothing but a selloff.
 
If you recall the futures trading upon the news of the London bombings the SPX futures were down 26 points hours before the open but significantly recovered because the Fed learned after 9/11 how to manage BSE's by immediately pumping liquidity into the markets to stablize the pending chaos of the event.

I can understand how a 500 point drop or 60 point drop on the SPX can feel like a BSE. It felt that way to me. But by pure definition the market (when it drops precipitously) is reacting to something that was completely unexpected.

Feb 27th was the result of piling on to bad news from several corners of global markets.

I appreciate the debate.
 
Quote from jeffm:

Someone asked a couple of days ago about the month to month SPX changes. Attached is a spreadsheet w/data going back to 1986. Thanks go to rdemyan who I think was the one who originally posted it here.
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Thanks for that Jeff and i also found the old posts by rdemyan. I havent had the time to check the figures yet due to my day job but want to see if the month to month drops from mid/late 2000 to mid 2002 corresponds to the scary downward spiral i see in BIGCHARTS.

I dont care if its called a black swan or not (it doesn't have to be called that). I just think my Put credits spreads would nnot have survived that two year period. Tuesdays 60 point drop seems managable because the downward spiral seems to have stopped ...for now. But if it kept going down on a slow downward spiral of around 10 - 15 pts a day, if would cause alot of pain.

That's my point; it does not have to be a black swan to cause problems. A slow grinding downward spiral like that 2 year period of interest is what im really scared of.

Apologies if im repeating, but it seems most on this thread is only worried about BSE's
 
Why does it have to be scared...You can get a big Put debit spread or straight PUTs then ride the Santa Clause Sled down Ho Ho Ho! Or buy call credit spreads only.

Yeah I know easier said than done....:)


That's my point; it does not have to be a black swan to cause problems. A slow grinding downward spiral like that 2 year period of interest is what im really scared of.

Apologies if im repeating, but it seems most on this thread is only worried about BSE's [/B]
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Quote from bklamco:

Why does it have to be scared...You can get a big Put debit spread or straight PUTs then ride the Santa Clause Sled down Ho Ho Ho! Or buy call credit spreads only.

Yeah I know easier said than done....:)
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Agree with your statement. But the problem is most of the people on this thread are credit spreaders, hence the journal name SPX Credit Spread Trader :)

Will you buy a debit spread now? You may think the worse is over and start selling Put Credit spreads after this nice drop. But what if this is just the beginning of another sharp sustained fall...
 
We always use a unexpected downside as a BSE example. Anyone can point an example of upside BSE?

Since a lower IV comes with the up market, is it safer to sell the call side credit spread?
 
Quote from yip1997:

We always use a unexpected downside as a BSE example. Anyone can point an example of upside BSE?

Since a lower IV comes with the up market, is it safer to sell the call side credit spread?
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April 1978 was an extremly unexpected market surge.

Note; Lower IV was not always associated with an up market. That's a 'recent' phenomenon. Up markets once came with volatility explosions in (these dates are from memory, but I believe they are accurate) Apr 78, Aug 80, and Aug 84. I remember each event because I was caught short lots of naked calls each time.

Mark
 
I think the thread allows you to deviate from time to time if the market warrants something other than credit spreads, Ive seen debit spreads and puts traded in th past when option coach was more active. I've seen some traders here using a combination of different things.
I've also see some who insist their way is the only way period but dont bother to explain thier method only that fotm credit spreads stink and their way is better but what the hell is thier ways, I would like to know, so I can benefit.

If my toolbox only had one tool or a golfer only had one club for all problems it does not sound too great.

A call credit spread would do the same trick as a debit credit spread or direct put.




Quote from scoobie27:

Agree with your statement. But the problem is most of the people on this thread are credit spreaders, hence the journal name SPX Credit Spread Trader :)

Will you buy a debit spread now? You may think the worse is over and start selling Put Credit spreads after this nice drop. But what if this is just the beginning of another sharp sustained fall...
More...
 
Quote from bklamco:


I've also see some who insist their way is the only way period but dont bother to explain thier method only that fotm credit spreads stink and their way is better but what the hell is thier ways, I would like to know, so I can benefit.

If my toolbox only had one tool or a golfer only had one club for all problems it does not sound too great.
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Plenty of other strategies were mentioned in the past. But mainly set up so a credit was received on opening a spread. such as

1. Debit double diagonals favoured and used succesfully by Sailing but did not work for me on two occasions i tried it. It was profitable for me for a while as the underlying dropped and vix wnet up. I did not close for a small profit as i was hoping for more. As per Murphy's law on both occasions, it ended up back in the middle. ie the loss area in the risk graph.

2. Credit diagonal spreads

3. Ratio spreads

4. Back spreads

5. And the good ol credit put and call spreads

I think maverick has given his blessing for 3 and 4 as good strategies. And optioncoach uses them in his arsenal as well. But you would have to search for them for detailed info on how they're used. Everyone has their own ways of using them. eg how CTM or OTM to go. Good luck.
 
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