Quote from elverde:
The point I've been trying to make is that Sept 11th is THE BSE. The market reacted to it. It's the BSE's such as 9/11 that one can never predict or prepare for. The market action on 9/17 was the reaction to the BSE on 9/11. Recent market volatility is not tied to a BSE. It's just the combination of a variety of not very positive economic news.
That's why in my trading world of SPX Index's I like to be FOTM so that I have time to unwind. In today's environment a BSE inspired by North Korea, Iran or al Queda would leave us all running for cover. Someone near the money would get wiped out and have little opportunity to protect himself. Unless of course he had a debit spread. In that case he would be a brilliant.
But to answer your question I can not recall how orderly the drop was on the 17th. I wasn't doing SPX spreads at that time.
OK.
9/11 may or may not have been a BSE regarding an SPX Bull Put spread. If there was any wiggle room on 10/17 to trade by exiting the short put while letting the long puts recover the short position losses, then it was (IMO) not a BSE.
Here is my point:
The antagonists against vertical credit spreading (particularly on the Put side) are constantly belittling the poor RRR's and vulnerabilities to BSE's. And yet while the risks are rare, they are obvious to everyone!
There is another group who apparently enter into these vertical positions without a trade management plan, and when they experience account damage on sharp mkt moves, they want to cry out "Black Swan", "Black Swan" when the problem was that they failed to take control of their trade situation in reaction to real-time market moving circumstances.
To my mind, there is a significant amount of 'Chicken Little' syndrome here regarding BSE's and verticals.
The rare true BSE's hurt the majority of traders, not just vertical credit spreaders.
I'd like to encourage the credit VS antagonists to post their alternative trade suggestions every time they want to rant and rave about BSE vulnerablilities and poor RRR's (It is OK to post the vague greek speak... but also post the trade alternatives associated with the greek speak... ie. where's the beef!).
The credit VS's are high probability, poor RRR trades. And when you improve the RRR's by switching to different spreading techniques, you also reduce the probability associated with the trade.
Trade sizing is a key aspect of credit spreading. Do it on too large a scale related to your account size and you're liable to be 'chicken littleing' more often than you might like.
And like Forrest Gump... that is all I have to say about that!
Mech
