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SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Quote from Sailing:
I say margin... because we trade and profit from the margin used... which is our account size. We could leverage much higher, but at this time.. we feel comfortable at this debt ratio. It does leverage against a retail account about 5:1. Thus, selling premium at a 5:1 ration... allows us to profit fives greater in decay with the HairCut account vs. the retail. And, since you can take in so much more THETA, you can use this to provide upside as well as downside protection.
M~
Sailing,
What strategy did you use? It seems to me that HC gives you 2 to 3 times leverage for DD when compared to TOS retail margin.
Quote from yip1997:
Sailing,
What strategy did you use? It seems to me that HC gives you 2 to 3 times leverage for DD when compared to TOS retail margin.
I'd like to compare HC to Portfolio Margining which I use @ IB.
Another question for Sailing,
Did you just stumble upon OIH as a hedge, or can you list the criteria that might be used to identify other hedge vehicles?
Quote from MechTrade:
I'd like to compare HC to Portfolio Margining which I use @ IB.
Another question for Sailing,
Did you just stumble upon OIH as a hedge, or can you list the criteria that might be used to identify other hedge vehicles?
PM @IB is stress tested by price movement and volatility movement, where HC is stress tested by price movement only.
I don't want to corrupt the thread but here is a little info on PM. Portfolio margin gives the broker the opportunity to allow a customer to have the same Haircut requirement as a market maker on the floor. Rather surprising but there is almost no difference between the minimum margin for a customer with PM and a market maker haircut. Since it is so aggressive some firms like IB have added a lot of restrictions on it of their own volition. I see IB as not even really offering PM, they have come up with their own firm specific risk measurements (vol moves up and down, 5 standard deviation underlying moves, serious restrictions on any exponential risk positions, further restrictions on concentration and cross margining, etc.) Now that TOS is offering PM we are waiting to see what, if any, further restrictions they put on it.Quote from MechTrade:
I'd like to compare HC to Portfolio Margining which I use @ IB.
Quote from yip1997:
Sailing,
What strategy did you use? It seems to me that HC gives you 2 to 3 times leverage for DD when compared to TOS retail margin.
You're right.. the double diagonal strategy works great in 'normal' market conditions. The biggest downfall is the VEGA. In the double diagonal you're essentially long VEGA. And it's great... like in these conditions... except too much of a good thing can turn BAD.
For Example: If you're long say 20,000 VEGAs... and volatility increases.... you're golden.... but when it becomes irradic (like as of late & last march), the DELTAs overtake the VEGA. So a 30 pts move in the RUT has more NEGATIVE effect than the long VEGA can keep up with..... so, it has been our experience to nuetralize the position at a particular level by longing shorting the index. The problem here.. is capital..... it takes a ton of it at times.
The only other downside on the diagonal... was the relentless uptrend we experienced prior to this pullback. The uptrend kept decreasing the volatility, which is what you're long, thus creating a smaller profit/profit window. It was manageable... but not preferable..... so..
we wanted to come up with a strategy which would benefit from dreasing VEGA (ie, selling premium), and still be long VEGA to help with protecting against market pullbacks.......
... it took us a while... but the strategy is working beautifully. I would share it with everyone... but we really want more time to test the real market conditions... but thus far, in the uptrend the past two months and this current pullback.... it has been superb, I mean awesome. In fact, this past Friday's pullback was a huge portfolio profit.
The strategy is much more adventageous in a Haircut Environment... we have duplicated the strategy in a Retail Environment.... with satisfactory success.... but it's much more adjustment intensive..... and more RISK oriented.
We'll keep you posted.... going forward.
M~
As managing members of an investment company, as with anyother investment specialiest, RISK is the ultimate concern. With this in mind, most Nasdaq or DOW components are very closely related and for the most part closes correlated.
You can use the correlation indicator on ToS's software to find the correlation between anything and the S&P500.
What we wanted was an asset class which had good liquidity, higher priced options, good premium, and non-correlated to the Nasdaq. Our two choices were OIH and XAU. XAU was not as liquid and not high priced. So.. OIH was the candidate.
Our broker, VtraderPro, offers cross-margin relief on correlated indexes, stocks, ETFs, etc.... but could not offer us margin relief between OIH and NDX.... which was essentially what we wanted.
The two work great.... remember, you don't want neutrality, you want non-correlated. There is a big difference. Neutrality produces zero expected return.... ie, one goes up, the other down. Non-correlated just means the two are independent of each other. At times they both profit, other times they both don't, sometimes one does and the other does not.
Since general market movement has a tendency to move the entire market, there is always a little correlation, so to compensate for that, we position the OIH strategy as a negatvie delta position & the NDX strategy as a delta positive postiion. Remember, volatilities are slightly different in these two. NDX volatiilty increases on market movement down, whereas OIH volatility increases as their index moves up.
It's working real well... hope this helps shed some light!
M~
You can use the correlation indicator on ToS's software to find the correlation between anything and the S&P500.
What we wanted was an asset class which had good liquidity, higher priced options, good premium, and non-correlated to the Nasdaq. Our two choices were OIH and XAU. XAU was not as liquid and not high priced. So.. OIH was the candidate.
Our broker, VtraderPro, offers cross-margin relief on correlated indexes, stocks, ETFs, etc.... but could not offer us margin relief between OIH and NDX.... which was essentially what we wanted.
The two work great.... remember, you don't want neutrality, you want non-correlated. There is a big difference. Neutrality produces zero expected return.... ie, one goes up, the other down. Non-correlated just means the two are independent of each other. At times they both profit, other times they both don't, sometimes one does and the other does not.
Since general market movement has a tendency to move the entire market, there is always a little correlation, so to compensate for that, we position the OIH strategy as a negatvie delta position & the NDX strategy as a delta positive postiion. Remember, volatilities are slightly different in these two. NDX volatiilty increases on market movement down, whereas OIH volatility increases as their index moves up.
It's working real well... hope this helps shed some light!
M~
Quote from MechTrade:
I'd like to compare HC to Portfolio Margining which I use @ IB.
Another question for Sailing,
Did you just stumble upon OIH as a hedge, or can you list the criteria that might be used to identify other hedge vehicles?
Is anyone still on here? Maybe we should start a new thread like NDX Credit Spread trader or RUT Credit Spread trader and get more posts