How are SPX and SDS related?. Can we use SDS to hedge SPX credit spreads more effectively?.
thanks
thanks
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SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Good jibe, jj90 (see below) I'm sure Victor N would love to share his opinion, but do we have 12 hours to spare to listen?
Seriously, writing OTM index puts can only be done as a small part of an overall strategy. I agree with you that risk needs to be defined- either by buying further OTM puts or something else (e.g. buying ITM XLF puts).
Seriously, writing OTM index puts can only be done as a small part of an overall strategy. I agree with you that risk needs to be defined- either by buying further OTM puts or something else (e.g. buying ITM XLF puts).
Quote from 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?
SET is based on the opening "print" of each of the components of the S & P. Futures can point a direction but since the S&P is also cap weighted a large stock like SLB which goes down big on disappointing earnings can negate the futures effect.
SPX closed @1395 last Friday. My outlook for the market: SPX is not going up or down too much in two weeks. Iâm thinking to do the following 5 point Iron Condor Spread with SPX (paper trade):
Buy 10 Feb 1435 Call
Sell 10 Feb 1430 Call
Credit 1.25 x 1000 = 1,250 (estimation)
Buy 10 Feb 1360 Put
Sell 10 Feb 1355 Put
Credit 1.25 x 1000 = 1,250 (estimation)
Maximum gain = 2,500 if SPX closes between 1360 and 1430 on expiration day.
Maximum loss = 2,500 if SPX closes below 1357.50 or above 1432.50 on expiration day.
The reasons I would like to try this strategy:
1. Profit : Loss = 1:1 (not bad)
2. Limit Risk = 2,500 that is 5% of my account value (assume I have $50,00 in my account)
3. I donât worry too much about the adjustment if SPX is closed to my short strikes. (Right now I am not clear about the exit strategy and adjustment).
Any comments and advices about this strategy would be greatly appreciated.
Buy 10 Feb 1435 Call
Sell 10 Feb 1430 Call
Credit 1.25 x 1000 = 1,250 (estimation)
Buy 10 Feb 1360 Put
Sell 10 Feb 1355 Put
Credit 1.25 x 1000 = 1,250 (estimation)
Maximum gain = 2,500 if SPX closes between 1360 and 1430 on expiration day.
Maximum loss = 2,500 if SPX closes below 1357.50 or above 1432.50 on expiration day.
The reasons I would like to try this strategy:
1. Profit : Loss = 1:1 (not bad)
2. Limit Risk = 2,500 that is 5% of my account value (assume I have $50,00 in my account)
3. I donât worry too much about the adjustment if SPX is closed to my short strikes. (Right now I am not clear about the exit strategy and adjustment).
Any comments and advices about this strategy would be greatly appreciated.
Quote from zhangw:
SPX closed @1395 last Friday. My outlook for the market: SPX is not going up or down too much in two weeks. Iâm thinking to do the following 5 point Iron Condor Spread with SPX (paper trade):
Buy 10 Feb 1435 Call
Sell 10 Feb 1430 Call
Credit 1.25 x 1000 = 1,250 (estimation)
Buy 10 Feb 1360 Put
Sell 10 Feb 1355 Put
Credit 1.25 x 1000 = 1,250 (estimation)
Maximum gain = 2,500 if SPX closes between 1360 and 1430 on expiration day.
Maximum loss = 2,500 if SPX closes below 1357.50 or above 1432.50 on expiration day.
The reasons I would like to try this strategy:
1. Profit : Loss = 1:1 (not bad)
2. Limit Risk = 2,500 that is 5% of my account value (assume I have $50,00 in my account)
3. I donât worry too much about the adjustment if SPX is closed to my short strikes. (Right now I am not clear about the exit strategy and adjustment).
Any comments and advices about this strategy would be greatly appreciated.
The question here is what do you think about IV? If you guess that IV is too high and future volatility will be lesser then this is a coherent strategy.
Regards
Quote from zhangw:
3. I donât worry too much about the adjustment if SPX is closed to my short strikes. (Right now I am not clear about the exit strategy and adjustment).
Any comments and advices about this strategy would be greatly appreciated.
Always have an exit strategy or adjustment points before entering the market. During high volatility periods you don't have to think but only executing your plan
sugar & FT79, thank you for your comment and advice.
My prediction for the market is totally wrong. For the last two days, SPX lost 58 points. My short strike 1360 is ITM now. It is too late to do an adjustment for put side. I closed 1430/1435 call spread and rolled down to 1395/1400. I spent $0.50 to close the spread; and had $1.00 credit for the rolling down. So my maximum gain for the iron condors would be ($1.25+$1.25)-$0.50+$1.00=$3.00; the maximum loss would be $2.00. I might be doing another adjustment to reduce my cost before expiration. As I know no matter what happen with the market, my risk is limited to $2,000, Iâm not panic.
In this volatile market, I think doing 5 point Iron Condors Spreads on SPX is less risky than doing Deep OTM, 10 or 15 Credit Spreads on SPX.
As always, I appreciate any help and advice
My prediction for the market is totally wrong. For the last two days, SPX lost 58 points. My short strike 1360 is ITM now. It is too late to do an adjustment for put side. I closed 1430/1435 call spread and rolled down to 1395/1400. I spent $0.50 to close the spread; and had $1.00 credit for the rolling down. So my maximum gain for the iron condors would be ($1.25+$1.25)-$0.50+$1.00=$3.00; the maximum loss would be $2.00. I might be doing another adjustment to reduce my cost before expiration. As I know no matter what happen with the market, my risk is limited to $2,000, Iâm not panic.
In this volatile market, I think doing 5 point Iron Condors Spreads on SPX is less risky than doing Deep OTM, 10 or 15 Credit Spreads on SPX.
As always, I appreciate any help and advice
Quote from zhangw:
I think doing 5 point Iron Condors Spreads on SPX is less risky than doing Deep OTM, 10 or 15 Credit Spreads on SPX.
As always, I appreciate any help and advice
When buying iron condors, there are always two ways to look at the trade.
First, when selling CTM (closer to the money) spreads the risk/reward ratio is better and the worst case scenario is better.
When selling further OTM spreads, the risk/reward ratio is worse, the potential gain is less, but the probability of success is much higher. This true whether you buy iron condors or sell credit spreads on only one side of the market.
You are throwing another variable into the equation when comparing 5-point CTM spreads with 15-point OTM spreads.
Why widen the spread to 10 or 15 points? Would you rather be less market neutral and prefer to sell only the call side or only the put side? Why do that - unless you have a proven track record of being successful in predicting market direction.
If you decide to sell a spread that's twice as wide, and if you collect less than twice as much cash, then you are making the risk/reward worse. Or if you sell only the call or put side and don't collect as much cash, the the R/R is also worse.
Thus, saying that a 5-point CTM IC is less risky than a 10 or 15-point OTM spread (on one side of the market) is not saying anything.
The real decision for you (IMHO) is: would you rather sell 5-point CTM spreads or <b>5-point</b> OTM spreads?
Mark