SPX Credit Spread Trader

[newguy05]

Quote from day7793:

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.

Yeah i agree. To be honest i only added the long calls to reduce the margin requirement. By using a condor instead of a short strangle, max profit went down from ~$800 to ~500 but my margin requirement went from 30k to 8k.

Disregarding margin requirement for a min, i dont think the extra protection from a condor is worth the 40% reduction in max profit vs a short strangle, as the calls/puts are already way OTM and the underlying is a large cap index that will provide plenty of time for risk control when it moves against you.

Also noticed the big hole between bid/ask for SPX, is there a similar but better index to trade with tighter bid/ask.

Thanks!

 

[jj90]

Quote from newguy05:

Disregarding margin requirement for a min, i dont think the extra protection from a condor is worth the 40% reduction in max profit vs a short strangle, as the calls/puts are already way OTM and the underlying is a large cap index that will provide plenty of time for risk control when it moves against you.

Thanks! [/B]

I know it's been said before, but wait till a 87' crash scenario when VIX spikes up +30 and that's being optimistic, while your short put increases 10x in value instantly. Add to the enormous B/A spread or lack of one , good luck getting out of your position.

 

[wtfomdecay]

Quote from jj90:

I know it's been said before, but wait till a 87' crash scenario when VIX spikes up +30 and that's being optimistic, while your short put increases 10x in value instantly. Add to the enormous B/A spread or lack of one , good luck getting out of your position.

new guy,

ask yourself, why did this thread suddenly die off? one reason is that many here who posted and traded these spx spreads got killed with the vol increase from 07. even the thread founder no longer trades spx extensively. look at future options, the margin req. is much less, use 10pt spreads , and then you are safer, using minimal margin, go very far out, you may make 3-4%. remember who won the race....the turtle!

 

[windsurfer]

I want to thank those who repeat comments like jj90's below for the ridiculously high premiums I receive. Certainly no-one should only write OTM puts- for example, consider buying ITM XLF puts- but for 20 years now the surest trading income has come from writing OTM index puts. Will this still be true in 2027, and will risk-adverse traders still be offering the same advice? Thanks again, jj90.

jj90 writes:

>I know it's been said before, but wait till a 87' crash scenario when VIX spikes up +30 and that's being optimistic, while your short put increases 10x in value instantly. Add to the enormous B/A spread or lack of one , good luck getting out of your position.

 

[dagnyt]

Quote from newguy05:




Disregarding margin requirement for a min, i dont think the extra protection from a condor is worth the 40% reduction in max profit vs a short strangle...

Thanks!

You are right. It's worth a whole lot more than the 40% reduction.

It's a life-saver.

Please don't sell naked index options.

Mark

 

[windsurfer]

EXACTLY!

Quote from wtfomdecay:

new guy,

ask yourself, why did this thread suddenly die off? one reason is that many here who posted and traded these spx spreads got killed with the vol increase from 07. even the thread founder no longer trades spx extensively. look at future options, the margin req. is much less, use 10pt spreads , and then you are safer, using minimal margin, go very far out, you may make 3-4%. remember who won the race....the turtle!

 

[El OchoCinco]

Quote from wtfomdecay:

new guy,

ask yourself, why did this thread suddenly die off? one reason is that many here who posted and traded these spx spreads got killed with the vol increase from 07. even the thread founder no longer trades spx extensively. look at future options, the margin req. is much less, use 10pt spreads , and then you are safer, using minimal margin, go very far out, you may make 3-4%. remember who won the race....the turtle!

Well we cannot realy assume..

The thread did not suddenly die off.. it died off months and months ago prior to August when I stopped posting and this goes back to very early in 2007 when vols were still low. I stopped posting because it was more trouble than it was worth and my P/L was positive when I stopped. I have moved from SPX to NDX mainly because the wide SPX spreads on b-a are just too much of a pain in the ass to deal with.

BUT everyone keeps forgetting that I said from the beginning that I never used 100% of my portfolio for this strategy nor was it my main and only strategy. Anyone who uses this for 100% is asking for a blowout. Therefore I never blow out my account even in a month like August where vols spiked and the market dropped so fast, I have only a part of my capital at risk and will never lose the entire amount.

It is just one approach which has its risks and rewards. But to be clear the thread ran its course a long time ago but those who know me still know I do spreads on the indexes with some slightl variations (more FLYS and long condors mixed together for example).

This strategy is a turtle strategy for long term gains and the only way you survive is studying the charts and limiting your portfolio risk to avoid blow ups. Also use other means to trade so that you are not putting all your eggs in one strategy basket.

 

[jeffm]

Quote from wtfomdecay:
ask yourself, why did this thread suddenly die off? one reason is that many here who posted and traded these spx spreads got killed with the vol increase from 07.

I disagree. The thread died off because it had a long and successful run. Newguy is asking the same questions that were discussed time and time again. There's nothing new here. The newbies or risk takers will get too close to the market, and they probably did get whacked in August. Some stuck with the program and recovered, some got discouraged and quit. The more careful traders sweated a little and came out just fine.

All of the various opinions about vertical spreads have been said. Just keep reading

 

[El OchoCinco]

Actually, my last trade posts go back to NOV-DEC 2006...

So a year is not dying off suddenly... allof 2007 was just banter and BS for the most part lol...

 

[bagzi]

i also started to read this thread from the begining. dont know how things worked out, but i want to say thank you all for it, it is a great read