SPX Credit Spread Trader

Quote from falconview:


PHIL said he went on MONTHLIES wider spreads in the SPX to increase the premium collected, which sounds like a logical thing to think of. Again, I can only vaguely remember something about MARGIN and dangers of widening the spread legs to several strikes. So had decided to stick with a one strike spread in the weeklies. Now I've forgot what it was? Old age I guess? You just confirmed the thing I was trying to remember and decision made to stick to one strike wide spreads is the right thing to do. Darn! I can't remember why I made that decision? Something in Phil's threads which was talked about.
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For me was easier to manage my margin and position looking at only 5 - 15 point wide spreads at the most. I would go up to 15 points wide for little more margin though the risk increased as much as well. I think doing 20 or 40 point wide strikes could lead one to even more lax risk management. Now this might all be mental but still for me I was in more of a comfort zone doing 5 and 10 point spreads to get in and out, even with the SPX "rape you" wide spreads. I moved some to NDX with wider strkes (fixed at 25 points) but easier to fill in many cases.

Just my advice, start small with narrow strikes even if the difference is just mental.
 
A few comments,

For those worried about early exercise of OEX options, the CBOE now posts information just after the close (3:30 cst) on the number and series that are exercised. A complete listing is available at about 6:30pm. You will be given the percentage of open interest exercised. So if you are short 10 options and 40% go, you know you will be assigned on 4. This will allow you to hedge with emini's many times before a big move has occurred.

Also those people who are trading SPX verticals should look at the BSZ's. These are binary options on the SPX. You are essentially trading an SPX vertical with a single option.
 
OOOOh my!

Interesting comment, but binary options are the same as a vertical spread with a single option?

Could you kindly elaborate in more detail please for us newbies? Sounds interesting. Probably never do it, but curiosity you know?
 
Philosphy!

In the first 100 comments on Phil's thread here on this forum, some guy jumped in one time, when I was reading them and mentioned that he had been trading credit spreads for four years and NEVER had a loss.

The guy then disappeared.

HOWEVER, the comment stuck in my mind, and where one person has trod a path, another can follow I presume? So I started recording my weekly take, so to speak and see where it leads? ( grin! )

There are people using credit spreads on stocks, and somebody once gave me a short list of good candidates for this. I lost the list though. Others trade other indexes and I notice a lot of people jump from index to index and stock to stock. Different strokes for different folks.

It has been suggested that I try other indexes to trade. I'm not sure why? I started with the OEX back in the middle 80's. At that time it was very high volume and highest liquidity. I guess it is still up there. But I expect the SPX and SPY are right there along with it.
That said, I did a quick and dirty study a few months back and found that I could start with $3500 and if somehow by COMPOUNDING get up to $300,000 I would still be able to trade ALL available money on the OEX with no trouble. I personally feel if I can work out the methodology, or nuances of intrerpeting intuitively what the OEX is doing successfully, that just MAYBE I could follow in the path of that fellow; that said he had been doing credit spreads for four years without a single loss.

And so we dream! It's fun and challenging though.
 
Quote from falconview:

OOOOh my!

Interesting comment, but binary options are the same as a vertical spread with a single option?

Could you kindly elaborate in more detail please for us newbies? Sounds interesting. Probably never do it, but curiosity you know?
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Binary options are traded on the SPX and the VIX (BSZ and BVZ) at the CBOE. They settle at either 1 or 0 depending whether they are in the money or not. For example if you were to buy the Aug 1000 BSZ call for .84, you would either make .16 if the index settled above 1000 or lose .84 if it settled below 1000. This is essentially the same thing as selling the 1000,1010 put spread in the SPX, (although you have a bit less risk as with the put spread it will be in the money below 1010.)

Note in the BSZ, you must trade 10 binary contracts to equal 1 SPX put spread. In the BVZ 1 binary equals 1 spread in the VIX.
 
Quote from optioncoach:

For me was easier to manage my margin and position looking at only 5 - 15 point wide spreads at the most. I would go up to 15 points wide for little more margin though the risk increased as much as well. I think doing 20 or 40 point wide strikes could lead one to even more lax risk management. Now this might all be mental but still for me I was in more of a comfort zone doing 5 and 10 point spreads to get in and out, even with the SPX "rape you" wide spreads. I moved some to NDX with wider strkes (fixed at 25 points) but easier to fill in many cases.

Just my advice, start small with narrow strikes even if the difference is just mental.
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I'm trading 50 points wide spreads on ES (5 points on SPY) and it works pretty good for me. The real difference between different spreads (widest vs narrowest) has nothing to do with margin (position size is the answer here), the difference it’s only a sensitivity question.

A wide spread works like a naked option and it will show you a high degree of tetha and gamma sensitivity, especially if you are working with far OTM spreads. Risk managament here is critical just after opening the position.

5-10 poins spreads, narrowest ones, are much calmer, but you must be careful because their time value loss is slower too and you can face a serious problem before the trade shown profits, althoug much time has passed.

We might even say that wide and narrow spreads are different products, they only share the same name: vertical spreads. :)

Regards
 
Hi Sugar

Your experience with wider spreads is interesting. I haven't really been able to put it in context with my own WEEKLY style of trading the OEX. Cannot visualize it yet. I do get what you are saying that the margin requirements do not change. I didn't follow the GREEKS explanation though. I can see fundamentally that if you use wider strikes, the one you sell will still be the same and bring the same premium, but the one you buy will be far cheaper if it is further out the money.
Since you or I rather, NEVER expect to have the underlying OEX hit my sold side of the STRIKE, as my newly formed goal of CLOSING A SPREAD when threatened, as a trading practice, it would not on the surface seem to matter if I used wider strikes? There was an explanation of some kind of option graphs showing a flatter profit curve or something, which I have not yet followed up on. Since we have had opposing recommendations on this list about that margin requirement business, maybe we could get a better explanation? My only real confusion was what it did to margin requirements? I can see a wider set of strikes would be advantageous as to keeping more of the premium from the sold side closer to the price movement.
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Binary options

I took the time to look them up on the web. There seems to be some new outfit advertising to trade them. I read a couple of different explanations.

Immediately I thought of THIS IS THE OLD CARNY GAME, of what as a kid we called DOUBLE OR NOTHING, or OVER AND UNDER.

I remember as a 14 year old kid working in a traveling Agriculture Fair on FALL season around farm villages and towns. I took tickets at the Lion Tamers and Monkey House and also once in a while filled in for booths that had games and prizes. One of these was a plywood board with a line of boxes numbered 1 to 12. Overhead was a pair of dice around six inch square. Kids and adults would place bets. Essentially you could place a bet on any number, say 1 to 5 and if that came up when the big dice rolled, you doubled your money. If you played SIX, same thing, and if you played any number between 7 and 12 the same thing. Don't know how they figured the ODDS on that, but you had one of three chances to double your money. Parents used to send their kids with pennies, nickels, dimes and quarters to bet and play the game. Somebody always won when you had a crowd. I always had a crowd of mostly children around the game. In an evening the take was around $150.
The binary options explanations on the internet, seem to indicate they are the same game with a slight variation? You have your starting number, and you identify your target number, either up or down of the market moves and they figure what percentage you will win, if your guess on index target, or stock price target is hit in a given time. If you are wrong, you lose ALL your bet. The ODDS are with the house if you can get enough players.
 
I'm beginning to like WEEKLY TRADING. You start on a Monday and finish on a Friday. In my time zone, I start with the market open at 7:30 a.m. and close at 2 p.m.
You can take the weekend off and even next week, having no trades running in the market. What a freedom for the mind. You can go on vacation with no trades active and worries.

Didn't get a trade on yesterday Monday. The market was undecided. This morning Tuesday we experienced a GAP down, good entry point I thought with only 4 days to go to expiration in WEEKLY TRADING. I started with the option chain showing a spread of .30 cents, but it takes 5 to 10 minutes it seems like to get the contracts numbers to change and the size of your LIMIT order cents changed. By the time I entered the spread order, it was showing only .15 cents on the option chain. I put it in anyway. Because of DELAYED DATA of 20 minutes, you are behind and my order was FILLED right away. I put it in at .30 cents and it was FILLED AT .40 cents. This means in the past 20 minutes the OEX had rebounded. I go for 3 STRIKE OUT THE MONEY options in the weeklies. I'd like another couple of strikes, but you don't have premiums that far out, as these are FAST EXPIRING in a weekly.

My trade is 50 contracts July CALLS 495/500 and got filled at .40 cents. Commissions were $160 and the net credit is $1840. I upped the ante this week and went for 50 contracts to see what the return would be. Margin required is $25,000 and the return is 7 % if the trade is successful with four days to go.

I'm feeling more comfortable with an exit strategy in place for closing the spread. Did find the correct button to hit, to bring up a CLOSE SPREAD order selection. But I haven't gone beyond that, as I'm afraid of messing up my running trade. Will try it when the time comes if it does? In the meantime, my backup idea is the LIVE HELP people to close the spread, if my third attempt fails again. Other than that, it is time to practice on my ukulele as I haven't touched it for about 8 months. Get the fingers nimble again. Met a guy a new neighbor who makes harps and he will bring over a harp and see what we can get out of it.
 
Quote from falconview:

Binary options

I took the time to look them up on the web. There seems to be some new outfit advertising to trade them. I read a couple of different explanations.

Immediately I thought of THIS IS THE OLD CARNY GAME, of what as a kid we called DOUBLE OR NOTHING, or OVER AND UNDER.

I remember as a 14 year old kid working in a traveling Agriculture Fair on FALL season around farm villages and towns. I took tickets at the Lion Tamers and Monkey House and also once in a while filled in for booths that had games and prizes. One of these was a plywood board with a line of boxes numbered 1 to 12. Overhead was a pair of dice around six inch square. Kids and adults would place bets. Essentially you could place a bet on any number, say 1 to 5 and if that came up when the big dice rolled, you doubled your money. If you played SIX, same thing, and if you played any number between 7 and 12 the same thing. Don't know how they figured the ODDS on that, but you had one of three chances to double your money. Parents used to send their kids with pennies, nickels, dimes and quarters to bet and play the game. Somebody always won when you had a crowd. I always had a crowd of mostly children around the game. In an evening the take was around $150.
The binary options explanations on the internet, seem to indicate they are the same game with a slight variation? You have your starting number, and you identify your target number, either up or down of the market moves and they figure what percentage you will win, if your guess on index target, or stock price target is hit in a given time. If you are wrong, you lose ALL your bet. The ODDS are with the house if you can get enough players.
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falconview,

Forget those OTC scam outfits that offer binary options, you can trade binary options listed on an exchange, just go to CBOE's website and look them up.
 
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