SPX Credit Spread Trader

[yip1997]

Quote from sugar:

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

ICs are usually not a bet on IV imo.

 

[sugar]

Hi Mark,

If I have a trade with a 15% probability of loss 500$ and I change it by another with a 50% probability of loss 485$, do you think that my risk is now lesser?

I think risk is the result of combining worst scene and the probability associated to this.

Maybe is a language problem and we are saying the same thing.

Regards from Spain.

 

[dagnyt]

Quote from yip1997:

Mark:

It is great to see you around. It has been very quiet for a long time.

Thanks YIP. You also. I take a peek here every morning, but as you said, not much going on. Maybe it will pick up again, but not likely.

Mark

 

[dagnyt]

Quote from yip1997:

ICs are usually not a bet on IV imo.

When you buy an iron condor you are short vega.

It's easy to consider this a play to collect theta and hope that gamma doesn't hurt.

But, the position is short vega and a spike in vega widens most spreads and an IV crunch narrows them.

This is not a big deal unless you have a large exposure to vega.

Mark

 

[dagnyt]

Quote from sugar:

Hi Mark,

If I have a trade with a 15% probability of loss 500$ and I change it by another with a 50% probability of loss 485$, do you think that my risk is now lesser?</b>

Yes. From the point of view of <i> maximum loss</i>

<b>I think risk is the result of combining worst scene and the probability associated to this.</b>

I don't. I think you make a decision on which trade is <i>better</i> based on maximum risk, maximum reward, and the probability of both. In other words, RISK is RISK and has has notnhiong to do with probability. Trade decisions are based on probability.

<b>Maybe is a language problem and we are saying the same thing.</b>

I think we agree, but are using different words to describe how we think about making decisions.

Mark

 

[yip1997]

Quote from dagnyt:

When you buy an iron condor you are short vega.

It's easy to consider this a play to collect theta and hope that gamma doesn't hurt.

But, the position is short vega and a spike in vega widens most spreads and an IV crunch narrows them.

This is not a big deal unless you have a large exposure to vega.

Mark

Mark:

I might be wrong. Is it true that most of the short vega is coming from the put side?

I normally just trade the put spread if i expect IV going down.

 

[dagnyt]

Quote from yip1997:

Mark:

I might be wrong. Is it true that most of the short vega is coming from the put side?

I normally just trade the put spread if i expect IV going down.

When trading OTM spreads, the option that is nearer to the money has the greater vega. Thus, both calls and puts contribute to being short vega when owning an iron condor. I suppose the put side contributes more vega due to the volatility skew, but that is also dependent on just how far OTM each spread is.

Consider this: When the market drops, IV increases. Thus, you may lose money when short a put spread - due to the market drop. When IV increases on the drop, you lose even more because you are short vega. Selling put spreads is like 'doubling down.'

When you expect IV to decrease, you clearly are not anticipating a market drop - or at least not a a big one. And selling puts is appropriate. But you are 'betting' on gamma, delta AND vega not to hurt on a decline.

Mark

 

[yip1997]

Mark:

Thanks for clarifying.

I just read that you have a new book coming out.

Recently my option trading strategies are getting attention in my investment/trading club, and they would like to learn trading options. They like me to introduce them some option books for beginners. Is your new book target for beginners?

 

[El OchoCinco]

Quote from yip1997:

They like me to introduce them some option books for beginners. Is your new book target for beginners?

Wait until you hear the title

 

[yip1997]

Quote from optioncoach:

Wait until you hear the title

I knew the title. Is it for traders or for investors? The title seems to target for traders, but not many strategies are introduced.

I have introduced them the covered call, cash-secured put writing, spreads as well as this thread. Just want to find out a better way to bring them to the next level.

Perhaps OC's book can help too.