SPX Credit Spread Trader

Quote from windsurfer:

Cortez,

You should follow your plan.

For example, I write further OTM puts (currently the 1375 ES) and buy back when they get within the lesser of $75 or $10 x number trading days left.

The key is to have your plan in advance and follow it without emotion.
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Thanks for the input windsurfer.

To clarify, on the SPY $75 would equate with .75 cents above the short strike or today being 7 days until expiration would equate with .70 cents above the short strike. Correct?
 
$70 on the ES means $7 on the SPY. Writing the 1375 ES put equals writing the 138 SPY put. But I`d suggest you look at th margin advantage in trading the ES options instead of the SPYs.
 
I have been doing credit spread using SPX for a while. I would like to try to use RUT. Before using it for doing credit spread, I have some questions:

1. What kind of style of RUT index is?
2. What day I can trade before expiration? On Thursday or Friday?
3. Does it have the risk of SET as SPX has?
4. Any other differences between these two index options?


Thanks in advance.
 
Quote from zhangw:

I have been doing credit spread using SPX for a while. I would like to try to use RUT. Before using it for doing credit spread, I have some questions:

1. What kind of style of RUT index is?
2. What day I can trade before expiration? On Thursday or Friday?
3. Does it have the risk of SET as SPX has?
4. Any other differences between these two index options?


Thanks in advance.
More...

RUT is European stye.

RUT options stop trading on Thursday, one day before the 3rd Friday of the month.

Settlement risk is present and the symbol is RLS.

RUT has strikes every 10 points and tighter markets. It's also much more volatile.

Mark
 
Quote from wilburbear:

Arbitrage in the options markets is a limited game. The U.S. options markets are among the first in the world to try to figure out how to eliminate arbitage, and therefore this form of price competition between them. All U.S. options exchanges trade the same options and all these options are fungible between exchanges. And, there's pprobably not a single academic paper which describes arbitrage as unhealthy. So arbitrageurs, with those lightning fills at the click of the mouse button rule the roost, right? Not so fast. The exchanges turned off the instant fills in arbitrage situations, and promised a "manual" fill in the pit. Only the fills never come, and the orders are merely discarded! All you guys at a national exchange should take a lesson, and copy what has been done here. Competition can be eliminated, even if it might be illegal to do so. Not filling disseminated quotes is against the SEC Firm Quote Rule, but you may forget, all these exchanges are Self-Regulatory Organizations (SRO's as they are called). Option-floor based SRO's do not list violations for price-fading to traders, even though these fades have flown like water through a fire house for at least 5 years! The SEC has also been managed out of existance. The SEC certainly knows about these issues (SEC report below), but the SEC now meets, and talks with the exchanges, arbitrageurs need not apply! Period. End of story.

There is a lawsuit about this called Last Atlantis Capital v. Chicago Board Options Exchange (CBOE), or something similar, but part of it's been thrown out. How to profit? Become a remote market-maker. It's becoming easier (and maybe cheaper). You can trade from your home. All option exchanges now have these programs. It's much easier being the "house". You can also bust trades you don't like, after you've actually traded them. In today's environment you've gotta go with being the "house", especially when you can move your regulator to the sidelines.

http://www.thememoryhole.org/corp/finance/sec_amex_report.htm
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Anyone get updates on this case which is now more than a year old? Judge Elaine Bucklo in the windy city (that being Chicago) had the case. Remember?

The powers that be in the options industry threw away trillions of orders from so-called RAES bandits, and proved that you really only have to honor some of your disseminated prices when you get to be a professional. When you're just a retail trader, you have to honor every price. You can't get out of it. When your submitted order gets electronically matched, you're done in milliseconds. Irreversible. Professionals can step away from a price that they created *after* an order comes in that accepts their price. How in the world are you going to beat an edge like that? The options industry has even constructed things so that they just have to shrug when this issue comes up with regulators (see above - and yes, I'm rambling now). A word to the wise - if you trade options, you mostly have to be "the house".

Sayanora.
 
As it is a long thread, I am still going through it, also since it is an old one, I am just curious:

1. is there any update/track (like a spreadsheet) on performance of the credit spread suggested on this thread?

2. has it worked so far to get 3-5% return as expected?

3. was there any other strategy suggested/tried out during the course of this journal that is considered better than the credit spread?

thnx
 
Quote from thinkplus:

As it is a long thread, I am still going through it, also since it is an old one, I am just curious:

1. is there any update/track (like a spreadsheet) on performance of the credit spread suggested on this thread?

2. has it worked so far to get 3-5% return as expected?

3. was there any other strategy suggested/tried out during the course of this journal that is considered better than the credit spread?

thnx
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1. Don't think so.

2. Depends on the individual trader, their plan and their risk management.

3. A number of other credit selling strategies are in these pages (CTM spreads, diagonals, calendars). Lots of great information from great traders, just keep reading through it and you will find lots of gold nuggets.
 
This is better than some books i read :) still going through it but some questions.

Assumption:

1)Writing OTM calls/puts (range example: SPX price:1476, call 1550, put 1395)

2)Writing only with 30 days or less till expiration

3)Writing SPX only

Question:

1) What's the point of writing credit spread instead of just shorting naked calls/puts? other than to satisfy margin requirements

2) Why not write a condor instead of just writing a call or put spread? Then you can pickup extra nickels from both sides.

3) Related to previous questions, which is the better trade to write & why?

SPX current price at 1476

A) condor: $455 per contract
Sell -1 SPX JAN 2008 1550 Call (.SXMAJ)
Buy 1 SPX JAN 2008 1570 Call (.SXMAN)
Sell -1 SPX JAN 2008 1395 Put (.SXYMS)
Buy 1 SPX JAN 2008 1350 Put (.SXYMJ)

B) strangle: $810 per contract
Sell -1 SPX JAN 2008 1550 Call (.SXMAJ)
Sell -1 SPX JAN 2008 1395 Put (.SXYMS)

c) spread
Sell -1 SPX JAN 2008 1550 Call (.SXMAJ)
Buy 1 SPX JAN 2008 1570 Call (.SXMAN)

thanks!
 
Quote from newguy05:

This is better than some books i read :) still going through it but some questions.

Assumption:

1)Writing OTM calls/puts (range example: SPX price:1476, call 1550, put 1395)

2)Writing only with 30 days or less till expiration

3)Writing SPX only

Question:

1) What's the point of writing credit spread instead of just shorting naked calls/puts? other than to satisfy margin requirements

2) Why not write a condor instead of just writing a call or put spread? Then you can pickup extra nickels from both sides.

3) Related to previous questions, which is the better trade to write & why?

SPX current price at 1476

A) condor: $455 per contract
Sell -1 SPX JAN 2008 1550 Call (.SXMAJ)
Buy 1 SPX JAN 2008 1570 Call (.SXMAN)
Sell -1 SPX JAN 2008 1395 Put (.SXYMS)
Buy 1 SPX JAN 2008 1350 Put (.SXYMJ)

B) strangle: $810 per contract
Sell -1 SPX JAN 2008 1550 Call (.SXMAJ)
Sell -1 SPX JAN 2008 1395 Put (.SXYMS)

c) spread
Sell -1 SPX JAN 2008 1550 Call (.SXMAJ)
Buy 1 SPX JAN 2008 1570 Call (.SXMAN)

thanks!
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Re: A

Not to be critical of your trades or anything like that I would not trade 20 point spreads on the call side and 45 point spread on the put sides. The reason is your security and safety.

If SPX touches your short strike your long strike would be of little value hence it won't offset your losses. What I have always found useful is to trade 10 point spreads one standard deviation or more away from the current strike. They have withstood the times when SPX threatened my short strikes in sudden moves it often makes to the downsides. It has a tendency to make violent moves so fast that IV swells and you cannot get out easily without a loss and in that case my long strike always came in handy to offset losses considerably.

Furthermore , If I had be you, I won't trade SPX since it has an abusive system of bid and asks with a complete monopoly on its pricing structures that is not helpful to retail investors. Check my post on ET regarding that matter.

Hope this helps.
 
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