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SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
I have been doing SPX CREDIT SPREAD since Coach started this thread. So far I am doing ok. The total gains are over total losses. This month I suffered a big loss because markets are so volatile. During the past four weeks, I entered the following spreads with SPX in my two accounts:
Account A
Sold 10 Aug SPX 1510/1530 calls @1.50 Credit (expired worthless)
Sold 10 Aug SPX 1445/1425 puts @1.70 Credit
Bought & Closed Aug SPX 1445/1425 puts @7.20 Debit, and roll down to:
Sold 10 Aug SPX 1360/1340 puts @1.60 Credit (expired worthless)
Total losses: 2,400
Account B
Sold 10 Aug SPX 1400/1380 puts @2.00 Credit
Bought 4 Aug SPX 1460/1435 put @7.50 Debit, cost 3,000
(as partial hedge, learned this strategy from Coach)
Bought & Closed 10 Aug SPX 1400/1380 puts @7.50 Debit
SPX SET @1450
4 Aug SPX 1460/1435 puts spread is only 10 point in the money, the gains would be
4,000 â 3,000 = 1,000
Total Account B losses: 4,500 ( If I closed Thursday, I would have gain in my account B)
Thursday SPX closed @ 1411. I have never expected SPX SET price would spike up so much on Friday morning. I remember Coach talked a lot of risk about SPX melt down or âBlack Swanâ, but seldom about spike up. I think when coach revises his Option Handbook, he would talk more about credit spread, and how to control the risk which is the key to the success using this strategy. My mistake would be good example for him to discuss âBlack Swanâ for upside risk.
Questions:
1. If I closed Aug 1460/1435 put Thursday, can I have 25 point credit? I was at home that day, and noticed SPX went as low as 1375.
2. I prefer to use 10 contracts for 20 point spreads, not 20 contracts for 10 point spreads as I think 20 contracts would be more risky than 10 contracts, am I wrong?
3. I am thinking to use other INDEX to do credit spread instead of SPX only. Which one would be better?
4. I knew this board from Yahoo Option. I check it every day, but I am always disappointed recently as most posts are talking other subjects instead of Options. Can some recommend me other message boards that I can check every day?
I hate to see this board it going to die. I sincerely wish Coach, Mark and others can continue to put some posts on this board. The subject can be about any kind of spreads, not limit to SPX Credit.
Your help and advice would be greatly appreciated.
Zhang
Account A
Sold 10 Aug SPX 1510/1530 calls @1.50 Credit (expired worthless)
Sold 10 Aug SPX 1445/1425 puts @1.70 Credit
Bought & Closed Aug SPX 1445/1425 puts @7.20 Debit, and roll down to:
Sold 10 Aug SPX 1360/1340 puts @1.60 Credit (expired worthless)
Total losses: 2,400
Account B
Sold 10 Aug SPX 1400/1380 puts @2.00 Credit
Bought 4 Aug SPX 1460/1435 put @7.50 Debit, cost 3,000
(as partial hedge, learned this strategy from Coach)
Bought & Closed 10 Aug SPX 1400/1380 puts @7.50 Debit
SPX SET @1450
4 Aug SPX 1460/1435 puts spread is only 10 point in the money, the gains would be
4,000 â 3,000 = 1,000
Total Account B losses: 4,500 ( If I closed Thursday, I would have gain in my account B)
Thursday SPX closed @ 1411. I have never expected SPX SET price would spike up so much on Friday morning. I remember Coach talked a lot of risk about SPX melt down or âBlack Swanâ, but seldom about spike up. I think when coach revises his Option Handbook, he would talk more about credit spread, and how to control the risk which is the key to the success using this strategy. My mistake would be good example for him to discuss âBlack Swanâ for upside risk.
Questions:
1. If I closed Aug 1460/1435 put Thursday, can I have 25 point credit? I was at home that day, and noticed SPX went as low as 1375.
2. I prefer to use 10 contracts for 20 point spreads, not 20 contracts for 10 point spreads as I think 20 contracts would be more risky than 10 contracts, am I wrong?
3. I am thinking to use other INDEX to do credit spread instead of SPX only. Which one would be better?
4. I knew this board from Yahoo Option. I check it every day, but I am always disappointed recently as most posts are talking other subjects instead of Options. Can some recommend me other message boards that I can check every day?
I hate to see this board it going to die. I sincerely wish Coach, Mark and others can continue to put some posts on this board. The subject can be about any kind of spreads, not limit to SPX Credit.
Your help and advice would be greatly appreciated.
Zhang
Quote from zhangw:
Questions:
1. If I closed Aug 1460/1435 put Thursday, can I have 25 point credit? I was at home that day, and noticed SPX went as low as 1375.
2. I prefer to use 10 contracts for 20 point spreads, not 20 contracts for 10 point spreads as I think 20 contracts would be more risky than 10 contracts, am I wrong?
3. I am thinking to use other INDEX to do credit spread instead of SPX only. Which one would be better?
4. I knew this board from Yahoo Option. I check it every day, but I am always disappointed recently as most posts are talking other subjects instead of Options. Can some recommend me other message boards that I can check every day?
I hate to see this board it going to die. I sincerely wish Coach, Mark and others can continue to put some posts on this board. The subject can be about any kind of spreads, not limit to SPX Credit.
Your help and advice would be greatly appreciated.
Zhang [/B]
1) No. you could not have a 25 point credit because no one in his right mind would ever pay that much. You could have attempted to sell and determine if you were satisfied with the price available. Alternative: Buy 10 Aug 1435 calls, or 10 1435/1460 call spreads. Either would have been very cheap. that protects the upside 100% (even more than 100% if you had bought the calls and not done the spread.)
2) I prefer 20 contracts of 10-point spreads, but it's a personal choice. the ultimate risk is the same for either. But IMHO, I'd rather be short the 10-point spread as expiration approaches. I just find it easier to handle. Also, because I love to close positions way before expiration, I find the price for the 10 point spread more attractive when closing (yes, I know I must buy twice as many spreads). as I said, personal choice and comfort zone.
3) 'Better' is a relative term. Better for me is not necessarily better for you. SPX options have the highest volume, but the markets are disgusting. I like RUT and others prefer NDX.
4) the Yahoo board is a joke. But, if you start placing posters on ignore, it won't be so bad. I have none to recommend.
Mark
This may be off topic, but since I cannot create a new thread, I copied the same post from another forum for all the SPX traders to see:
Anyone who has ever ventured to trade SPX regrets to be in this index. SPX trades on a single exchange and lacks competition and pricing efficiency. Its a horrible index to get caught on an expiration Thursday if you are unlucky enough once.
Thursday 8/16/2007 was index expiration, and SPX was being jockeyed around by Hedge Funds and Trading desks up and down to 1370 levels. If you held a position on the day of expiration and if your options were under water, you would be paying a$ 3.00 difference between bid and ask prices. The bids and asks for spreads were equally nasty $ 4.00 and $5.00 ! It was highway ransom money for the market makers! For example Aug 1400 puts were priced at 19.00 bid x 23.50 ask and they would toss you to the side , if you dared to give them $ 1.00 more from the mid prices! The orders won't get filled. They wanted you to come up and shell out the ask at 23.50 ,or no deal at all.
HOW TO DEAL WITH SPX MARKET MAKERS
Here is a technique that you can successfully employ.
You take the mid price and place your order on 2 contracts.
If the bid was 19.00 and ask 23.50 , you place your order at 21.25 or even at 21.00 and watch that wide bid and ask collapse on your screen. Now they are required by law to show your bid, if they don't, call you broker and ask him how come my bid is not there ? Show it. Pretty soon this greedy market maker realizes that he has lots more to lose than gain. With that narrow bid of 21.00 and ask of 23.50, he can lose lots of bigger orders at 20, 30, 50 and 100 contracts, so he fills yours and gets you out of there as fast as he can and the bid goes back to staying at 19.00 x 23.50 on your screen but you are out. You should not increase the size of your contracts more than 2 or maximum 3 otherwise they will let you just languish there for a while.
So keep hitting them with ones and twos and keep hammering them till your entire position is out. Never give more than mid prices. This works on all SPX trades on any given day , try it.
Anyone who has ever ventured to trade SPX regrets to be in this index. SPX trades on a single exchange and lacks competition and pricing efficiency. Its a horrible index to get caught on an expiration Thursday if you are unlucky enough once.
Thursday 8/16/2007 was index expiration, and SPX was being jockeyed around by Hedge Funds and Trading desks up and down to 1370 levels. If you held a position on the day of expiration and if your options were under water, you would be paying a$ 3.00 difference between bid and ask prices. The bids and asks for spreads were equally nasty $ 4.00 and $5.00 ! It was highway ransom money for the market makers! For example Aug 1400 puts were priced at 19.00 bid x 23.50 ask and they would toss you to the side , if you dared to give them $ 1.00 more from the mid prices! The orders won't get filled. They wanted you to come up and shell out the ask at 23.50 ,or no deal at all.
HOW TO DEAL WITH SPX MARKET MAKERS
Here is a technique that you can successfully employ.
You take the mid price and place your order on 2 contracts.
If the bid was 19.00 and ask 23.50 , you place your order at 21.25 or even at 21.00 and watch that wide bid and ask collapse on your screen. Now they are required by law to show your bid, if they don't, call you broker and ask him how come my bid is not there ? Show it. Pretty soon this greedy market maker realizes that he has lots more to lose than gain. With that narrow bid of 21.00 and ask of 23.50, he can lose lots of bigger orders at 20, 30, 50 and 100 contracts, so he fills yours and gets you out of there as fast as he can and the bid goes back to staying at 19.00 x 23.50 on your screen but you are out. You should not increase the size of your contracts more than 2 or maximum 3 otherwise they will let you just languish there for a while.
So keep hitting them with ones and twos and keep hammering them till your entire position is out. Never give more than mid prices. This works on all SPX trades on any given day , try it.
Account B
Sold 10 Aug SPX 1400/1380 puts @2.00 Credit
Bought 4 Aug SPX 1460/1435 put @7.50 Debit, cost 3,000
(as partial hedge, learned this strategy from Coach)
Why did you buy this debit put spread? can you elaborate please? How does this works in your whole set up?
Sold 10 Aug SPX 1400/1380 puts @2.00 Credit
Bought 4 Aug SPX 1460/1435 put @7.50 Debit, cost 3,000
(as partial hedge, learned this strategy from Coach)
Why did you buy this debit put spread? can you elaborate please? How does this works in your whole set up?
Quote from optioncoach:
I finally got fed up with SPX wide abusive spreads and just trade the NDX now since the beginning of this year.
Please read my post on " How to pull the rug on SPX traders" at the end of your journal. You know this already, but I posted it anyhow.
I was caught on expiration day 8/16/2007 with 12 contracts August 1400/1385 put spread. Hammered my way out. They won't let you out. I am disgusted the way SPX market makers operate.
Quote from day7793:
Here is a technique that you can successfully employ.
You take the mid price and place your order on 2 contracts.
If the bid was 19.00 and ask 23.50 , you place your order at 21.25 or even at 21.00 and watch that wide bid and ask collapse on your screen. Now they are required by law to show your bid, if they don't, call you broker and ask him how come my bid is not there ? Show it. Pretty soon this greedy market maker realizes that he has lots more to lose than gain. With that narrow bid of 21.00 and ask of 23.50, he can lose lots of bigger orders at 20, 30, 50 and 100 contracts, so he fills yours and gets you out of there as fast as he can and the bid goes back to staying at 19.00 x 23.50 on your screen but you are out. You should not increase the size of your contracts more than 2 or maximum 3 otherwise they will let you just languish there for a while.
So keep hitting them with ones and twos and keep hammering them till your entire position is out. Never give more than mid prices. This works on all SPX trades on any given day , try it.
There is no such thing as fooling the market maker or hammering yourself out of a trade when the edge gets wide. The only reason why you got filled was a) some other trader took the other side of your trade or b) you crossed the theoretical price of some arb auto bot. The market maker will not fill you at -edge just to get you out of the way. He is not going to lose order flow just because your 2 lots sit on the screen.
Quote from rallymode:
There is no such thing as fooling the market maker or hammering yourself out of a trade when the edge gets wide. The only reason why you got filled was a) some other trader took the other side of your trade or b) you crossed the theoretical price of some arb auto bot. The market maker will not fill you at -edge just to get you out of the way. He is not going to lose order flow just because your 2 lots sit on the screen.
Why this level of skepticism? Have you tried it yet? Are you here to learn or not? If you have to make noises please don't respond.
Nobody is fooling anyone here.
It works in fast moving furious moments like 30 minutes before close or early in the morning. It works practiaclly every day any time.
You can narrow the wide bid and ask with one account, and than hit that bid with your other account on the same computer screen!
It works specially like magic on expiration day when the bids and asks are wide enough so you can drive a Mac Truck through them.
Quote from day7793:
I was caught on expiration day 8/16/2007 with 12 contracts August 1400/1385 put spread. Hammered my way out. They won't let you out. I am disgusted the way SPX market makers operate.
IMHO, it's not the MMs that are the problem. It's the exchange that allows markets to be that wide. In my 20+ years as a CBOE market maker, we never (never) made crappy markets like that in my pit.
The problem is that you were trading expensive ITM puts. the best way out of the 1400/1385 put spread is to turn the position into a box by trading the call spread. Those options are OTM, lower priced, and easier to trade because the markets are not as wide.
Mark
Quote from day7793:
Why this level of skepticism? Have you tried it yet? Are you here to learn or not? If you have to make noises please don't respond.
It works specially like magic on expiration day when the bids and asks are wide enough so you can drive a Mac Truck through them.
It works on expiration day and it works when the markets are busy because - believe it or not - you are not the only person trading these options. Other individual investors see those two lots near the midpoints and are eager to take those offers. In addition some customers send market orders to the pit, and those also hit your bids and offers. And some MMs are small traders, eager to take down a couple of lots, looking for a scalp.
There are many reasons why those two lots get filled. And the fact that the market was rapidly moving higher and lower is probably the best reason of all.
The MMs were far too busy to pay attention to ignoring or filling your two lot.
The question is whether YOU are here to learn or here to provide professional advice. Which is it?
Mark