SPX Credit Spread Trader

[HedgefundTrader2]

Quote from newguy05:

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!

There is no reason for you to stick to this abusive system of bid and ask in SPX. It very hard to get out of your positions should things go bad which happens often since SPX is the most manipulated index there is and is constantly pitted against all worldly news out there that you can think of.

Try NDX, RUT, IWM, SPY. I like NDX its a great index with good executions and tight bid and asks.

 

[HedgefundTrader2]

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!

That is true. I have stopped trading SPX condors and credit put spreads since last Summer. Many people have stopped trading SPX mainly due to hard executions and wide bid and ask abusive prices. However we have found a way to break this hold by the greedy market makers but its still not worth it.

Search for my post on How to beat SPX market makers, there is a long discussion on it on ET website.

 

[HedgefundTrader2]

Quote from optioncoach:

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...

As far as I know you donot trade SPX anymore and moved on to NDX, RUT and other indexes. That is the reason the thread is sluggish and hardly revisted. I have no interest in SPX either.

 

[HedgefundTrader2]

Quote from dagnyt:

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

Well you can bang your drum the way you like, there are always people who enjoy bareback sex...

 

[El OchoCinco]

Quote from 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

Well I will not ruin the end totally for you but...

Voldemort dies...

 

[RichardRimes]

Quote from optioncoach:

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.


Hi Coach and others...you did do some credit spreads on Future Options...when you first did them there wasn't much liquidity but now that TOS is going to offer them in feb I'm wanting to visit the issue and ask:

1) are they european/American ? can you be exercised early?
2) is there SET risk on the Future's ES (option?) contract or does it expire at a set time
3) I've checked the CME website but can't seem to find the information specifically about them...where can I go ?

thanks...happy trading to all in 08..

]

 

[RichardRimes]

After some more snooping around on the CME website I did find their brochure that explains the CME EOM Futures options contract on the SPX..

It is European exercise so no early exercise and settlement is different.

"Special Settlement Fixing Price"...On expiration day (the last business day of the month) for both the standard and CME E-mini S&P 500 EOM options the exchange uses the weighted average trading price of the nearest quarterly CME E-mini S&P Futures contract during the last 30 seconds of trading before the 3PM close (4Pm east coast). This special fixing price is disseminated immediately using the symbol ESF.

This special fixing price provides customers with a timely and accurate way to assess the prevailing value of the underlying contracts. The special 3PM close also gives customers 15 minutes before the close of the CME equity futures markets to offset any futures positions they are assigned if they do not wish to maintain the futures position beyond that day. (Upon exercise, these customers may have positions in the nearest quarterly futures contracts.)"

I don't see why Futures Options with this immediate settlement and with expiration at the EOM wouldn't become more popular than the current CBOE antiquated product.

 

[jj90]

Quote from 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.

There's a very good reason why those premiums are inflated. I have no problem with selling OTM index puts, but I do advocate defining your risk by buying another further OTM put. Since no one has any idea when the next crash will happen, saying theres a 1^-10000000000000 prob. still doesn't mean it won't happen tomorrow. The biggest question is of course, does the gains from 20 or so odd years offset the one day inevitable loss? Maybe Neiderhoffer can share his opinion?

 

[zhangw]

"The more careful traders sweated a little and came out just fine."

I agree.

This is a very good thread. I am glad to see some people visit it and raise some questions. I hope the Elite Trader will keep this thread for a long time. If I have time, I'll go back to read from the beginnig.

I have tried some options strategies (Covered Call/Naked Put/Straddle/Vertical Spread), but I prefer credit spread as it easier to win. Although I suffered big loss in August, but for whole year, my gains are still much more than loss. I'll continue to use this strategy with good risk control.

By the way, I'm interested in learning Future Options. Can some one recommend me:

1. Book 2. Website 3. Where I can open an account for trading Futures options

Thanks to Coach, Mark and others for their contributions to this valuable thread.

Happy New Year to all of you!

Zhang

 

[wilburbear]

Quote from wilburbear:

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.

Unlimited gains in the option market are possible if you are a market-maker. The SEC actually *assists* the exchanges and market-makers in avoiding responsibility for massive violations against public customers.

The SEC has more reports like this one.

http://www.thememoryhole.org/corp/finance/sec_amex_report.htm

This report which was leaked from within the SEC, shows the SEC knows about violations in the options markets. The SEC covers up the violations by keeping these reports a secret for the option exchanges! (The report above only concerns the AMEX. SEC reports on the other option exchanges have been referred to in legal documents but are being closely held by the SEC). How would you like to have the SEC "riding shotgun" with you, as you did whatever you wanted to the public customer? The sky is the limit. But you must be a professional in order to receive
the special benefits of the SEC protecting you. The public never wins in Vegas, and they don't win in the securities markets. The SEC will not allow it, and to prove it, they will never release what they know about the massive violations at the option exchanges.

Adios Amigos