SPX Credit Spread Trader

Oh man, you ain't shitting me. I had the exact position and I was checking all Friday morning. Obviously I must have been looking at the wrong data cause it said the settlement was 849-ish. Oh well, plenty more months to make up the loss. That was a pretty big hit though, I was expecting 851 if things went south.

RUT settlement was 824 on Thurs and 853 on Fri. RUT actually closed around I believe 837-9 and opened around 844 and went as high as 850-ish. This may seem arbitrary but we could use the difference between the settlement and index change and base a decision off that. If you run the numbers you will see that we can say if RUT closes <2% of value to strike, close position. If anyone has any actual basis to this, please share.
 
That sucks...its enough to make one believe in conspiracy theories...but after April SPX set...sheesh I believe anything is possible...perhaps if you are 25-30 pts OTM your safe...however one of these days that will get hit as well.....oh well :( making a habit of closing (even if it seems like giving the money away to the mm's) is truly, truly ...TRULY the way to go...but some of us including moi still seem to try and game it...:confused:

I used to believe that lower volatility environments "should" keep settlements in a reasonable range. Back in 99-02 the vols went so high there were a number of sets that were really wild. However I don't think now you can make any kind of correlation and it stick...ugh
 
"making a habit of closing (even if it seems like giving the money away to the mm's) is truly, truly ...TRULY the way to go...but some of us including moi still seem to try and game it..."

You just outlined one ( of so many) problem when you sell such a low vols...What % of your profits would you give back by early close ? Compare the SAME b/a slippage in the higher vols environment (hence , larger premium received ).
 
Quote from IV_Trader:

"making a habit of closing (even if it seems like giving the money away to the mm's) is truly, truly ...TRULY the way to go...but some of us including moi still seem to try and game it..."

You just outlined one ( of so many) problem when you sell such a low vols...What % of your profits would you give back by early close ? Compare the SAME b/a slippage in the higher vols environment (hence , larger premium received ).
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No question THAT IS the connundrum...you give up profits when you sell in low vol and close early..if you can chose and sell in higher vol for higher prem then closing early for 20 cents is no big deal...however you have to be right on direction/vol or both. Pick your poison. If you have a very high prob of profit, small premium then I think you almost have no choice but to hold and risk the occasional wipe out. This spring/summer with 12-14 vols its actually better for trading credit spreads. Last fall with sub 10 vols you were much better just going with the trend...up up up.
 
Quote from yip1997:

I got hit again this month and it erased 2/3 of my monthly profit.

I had 850/860 RUT credit spread, and decided not to close...

I feel very bad not to close it @ 20 cents and it cost me $3.45 for the decision. Was it a bad decision?
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This is a constant dilemma for premium sellers. It's never easy to pay cash for something you feel is essentially worthless, but the bottom line is that we have seen over and over again that you just never know.

I believe it is far better to close every time - and I don't usually wait until the last day. But I must admit, that I was short 15 of the 840/850 spreads and only bought in 13, leaving 5 (very costly) spreads outstanding.

The sad part for me is that I covered all my short spreads that were even further OTM, such as the 860/870 calls and all my put spreads. But neglected to get in all of my risky shorts.

I even seriously considered buying the 840s and not selling out my 850s for 20 cents, but decided that would be foolish!!

"Was it a bad decision?"

I don't believe that's the point. If you are consistent, you should be okay over time. If you always buy them in, most of the time you will cost yourself some cash. But once in awhile you save a bundle.

If you never buy them in, then it's the opposite.

The worst situation is to sometimes buy them in and sometimes not. Then you will always be second guessing yourself.

Mark
 
I really hate SET. My personal rule has been if there is a big event coming up on SET then I will typically look to close early regardless of how much of my profit I give up. I figure if I sold a contract for a 50 cent credit and have to close it out for even a 40 cent debit on a big SET day I'll do it.

Heck I'll take the 1% return (10 cent profit on 10 point spread), that's still annualized to 12% a year. (Of course I'm not taking commissions into consideration). It sounds dumb to people but it's saved me quite a few times plus you don't get a nasty SET situation like this all that often (Market beaten down to 50 day support twice and posied to bounce at the sligtest bit of in line inflation news, and CPI plus quadruple witching on the same morning)....So it's not often that I have to give up a big monthly gain. I like trading and taking risk but that's just too much for my stomach.
 
Live and learn. Sometimes we get caught up in absolute dollar amounts, forgetting the percentage return we already made. I was up >70% on that 850-60 short call spread by Thurs, and I opened it on Mon with 1 hour to the close. 0.2 cents to close the spread is nothing compared to the fact I just made 70% in 3 days. This is a constant reminder short gamma traders need to look at risk adjusted return and not absolute return. 3% monthly straight for a year compounded beats 6% with a DD of 15-20%. (I think my numbers are right) Just close that shit out, fuck 5 cents short options.
 
Thank you all for the suggestions.

I have been doing spreads for a year. It seems that the wild set occurs more often than I expected.

I tried not to make any unnecessary adjustment in order not to lose extra edge to MMs. It is hard to know what a proper adjustment is.
 
Quote from RichardRimes:

No question THAT IS the connundrum...you give up profits when you sell in low vol and close early..if you can chose and sell in higher vol for higher prem then closing early for 20 cents is no big deal...however you have to be right on direction/vol or both. Pick your poison. If you have a very high prob of profit, small premium then I think you almost have no choice but to hold and risk the occasional wipe out. This spring/summer with 12-14 vols its actually better for trading credit spreads. Last fall with sub 10 vols you were much better just going with the trend...up up up.
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As huh suggested:

"My personal rule has been if there is a big event coming up on SET then I will typically look to close early"

The above is one piece of the puzzle...

Consideration should be given to what Economic data is scheduled to be released at 7:30 CST on the morning of SET.

If any significant data is scheduled for that morning, then that might be a strong motivator for exiting an otherwise 'safe' position early.
 
We have had this discussion several times with respect to SPX SET but it pertains to SET for other indexes as well. You never want to play the SET game ever, especially for anotrher dime or two. If you have a profit and are still in the position on Thursday then get out unless you are a sizeable distance away.

For SPX I often cited 10 - 15 points as minimum safe distance, and I definitely advised being more cautious when Friday morning has a significant economic or earnings announcement on tap.

I avoid probelms with SET bty simply not being around friday morning on any position, especially if to do so is just for another dime or two. I only stay if I am sufficiently OTM and Friday morning is going to be quiet.

I would say a CPI release AND a triple witching were enough reasons to get out before SET>
 
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