SPX Credit Spread Trader

Falconview, your closing the spread was one point from the strike price, which is way too close. If you did that long before that you would be able to do it for a much smaller loss. To say there ais a level with 100% success, is just not statistically possible.
Do you have any knowledge (or anyone) of some of the credit spread newsletters or auto traders. Two I have been looking at are "monthly cash through options" or "San Jose options". They are talking about a lower risk strategy than the credit spreads.
Has anyone had any success with any of the newsletters?
Thanks michael
 
You are right Stanford. My closing the spread near ATM was the maximum expense to me, but you don't really have the space, or width to sell earlier. The normal flutter in the market at stuff that is only 2 strikes out normally doesn't give you room to maneuver. The only thing I learned from it, was the LOSS taken ATM of the short spread side was about half of the loss it would be allowing it to go through the credit spread and eat up the margin.
Ergo: You make darn sure you sell a credit spread outside the limits of your weekly, or monthly range.


Reading up on short straddles. Interesting to note that a short ( sold put and call ATM is a CREDIT SPREAD.

Kind of nervy, because the risk is unlimited. However supposing one restricted to selling a short straddle credit spread when the VIX was below 18, should be very workable, as you want it as neutral as possible and in a BULL trend, the daily, or weekly bars get very short between high and low.
There are weeks, or monthly bars that basically go in one direction often enough. So what would happen to your side that was out the money I don't know?

"trading journal" contribution was talking about doing this during a month bar trading. There is a gain on one side that goes in your direction and also a gain on both sides because of collecting TIME DECAY. More than that I have not yet explored the intricacies.
I will try it on paper in my weeklies and see what happens when you have maximum THETA or time decay collecting.
I'm not sure what happens when one side goes in the money? Vaguely remember something about assignment? Not sure, doesn't ring any bells?
Wonder what happens if you use regular one strike spaced credit spreads as the saddle, limiting your risk?
 
Falconview, I think this discussion might be in the wrong place on this site. this is in a forum for peoples journals (I think probably Phils)
Do you think we should move it into the options portion of the site? Michael
 
Stanford

I'm learning something every day. A SHORT (SELLING) is a Credit Spread STRADDLE.
This is a credit spread site forum. I think it is appropriate. Nobody else is using it anyway. There is a thingy on here, that lets you see all submissions to all forums and people are simply jumping back and forth to kill time and learn something maybe? You and I are novices and it is mostly novices reading this stuff. The well established professionals are not wasting the time reading beginner stuff. They don't need it anymore.
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Here is my 12 week study on weekly bars.

From the Monday OPEN to the upside high.
8, 21, 4, 7, 8, 8, 12, 3, 2, 18, 12, 13, 8, 9, these were points in the OEX that moved up to the HIGH during the 5 day trading week. You notice that the 21 point actually penetrated the spread at 4 strikes, or 20 points ( multiply by 10 for NDX equivalency ) but closed back, giving up the credit. This was at 4 strikes out. There was another close one at 18. So the best play is out 5 strikes for putting on a spread. But if you trade every week, then that is not going to happen often, nor is the 4 strike rule going to hold as the week progresses probably.

The BEAR PLUNGE is a different picture:
From the Monday OPEN, to the lowest low.
55, 38, 25, 13, 11, 4, 27, 28, 25, 5, 5, 4, 4, points move on bar.

The last twelve weeks went through a BEAR PLUNGE and then a topsy turvey, consolidation ranging mode. It looks like it is working up to a BULL TREND breakout? Bull trends are good for Iron Condors.
The VIX for this week is 21.75 and the ATR or average daily range is about 8 points in the OEX ( multiply by 10 for the NDX ) That is not really tight, but fairly tight range because of the BULL fiddling around. Below VIX 20 is a BULL TREND breakout. The daily ranges tighten up, which is good for standard credit spreads and if I am to believe it, SHORT SELLING STRADDLES which is another type of credit spread to collect TIME DECAY. I will be paper trading this starting this Monday morning.

I will leg in and try not to put on a credit spread on the topside before I can get at least 4 strikes out by say Wednesday. Just follow the market action and see what is possible, always hoping for a 5 strike out-the-money credit spread.

I understand you collect more premium in a short straddle, ATM? Sounds interesting!
 
Trading Journals

Okay it is Monday morning and 40 mins into the action, have put on a paper trade of a SHORT STRADDLE credit spread.
Sell the 510 Calls for 4.70 in 1 contract
Sell the 510 PUT for 3.60 in 1 contract

Gross credit is $8.30 x 100, or $8300.
Trying to puzzle what the margin would be on this? Can you help? I'm not using TOS, just ordinary memo pad paper.
My expectation for the week, this would stay within 3 strikes each side in the OEX, or total 6 strikes, or 30 points in total.
You say the margin requirement is 20%. 20% of what? The leverage comment you made I presume is the number of contracts you use?
I'm not clear what happens when one side goes in, or out the money? One paper I read on the internet was saying CLOSE the call, or put if it goes in the money? Why you would do that I don't know? Especially if you are selling TIME DECAY. I'm trading the weekly, or 5 days. I can see collecting any profit from appreciation of the index move though, at the expense of lost TIME DECAY.
Something else said on the internet that this is UNLIMITED RISK! I do not see the unlimited risk aspect if you are selling TIME DECAY and operating within the expiration week. The options would return to ZERO, or 5 cents on Friday at expiration.
Question: If the index moved farther out than expected, the options would still expire worthless. So what is the problem here that I am not understanding?
Let us presume you sold a SHORT STRADDLE on late Wednesday or a Thursday morning before expiration. The TIME DECAY would be excellent that you are selling. Even if you got just 15 cents on one side and 5 cents on the other side of the STRADDLE. It would appear there would be no risk, or I am understanding this wrong?
One site recommended waiting until the index made a strong volatile move and then in consolidation you sold the STRADDLE. Advising you would get swollen premiums that would collapse and give you a profit you could take, if the market stayed dead, or reversed. The idea of buying back the appropriate option fter the premium ballooning collapsed, or other words collapsed volatility. Any comment on that?
Monday morning -
 
Stanford

IF this is your standard bull trend, I would expect the OEX index to gain 2 or 3 points daily. In the weeklies that means a gain for the week upward of 10 to 15 points. ( multiply by 10 for NDX action )

Therefore my strategy is to wait until Wednesday and see if the index will move up the 15 points, or a bit more than 10, to get on a standard credit spread you are studying. Probably an Iron Condor would probably be okay to leg in? Still I'm going to wait for things to develop more through the week first. Which may make it too late to place the lower bull put credit spread. I prefer to be safe than sorry when it comes to the lower spread.
 
OK, but I still think that line of thinking is going to lead you a big loss eventually without an adjustment sstrategy. Take a look at http://www.monthlycashthruoptions.com/ReturnOnInvestment.htm and scroll down to the trades they show. What about that strategy of rolling out to avoid the big loss. they do show quite a few losing months with the biggest one being 22% this past March.
What are your thoughts on that?
Also love to know if anyone has been following their trades or autotrades with them.
Thanks
 
That cash through flow website reads like hypothetical trading?

Can't trust that stuff. Besides the guy is losing money most of 2010. Looks like he can only trade the bull market trends?

I think you are following a FALSE HOPE by trying to figure out adjustments. I've discarded them, after reading couple hundred pages of the SPX forum. Rollovers they say are still a LOSS? You lose more on the CLOSE to go to a rollover, than you can make back. Lot of people on here back then 5 years ago ridiculed rollovers as an adjustment.

I've made up my mind. Bet on going WIDE and FAR OUT as you can in options to make it. Otherwise there is no game at all. If you can't bet far out, then no bet.

You sound like a dog worrying a bone with adjustments. In the OEX there are none. The flutter, or market noise is so close as being unable to effectively do anything about an accelerated move against a spread. You might CLOSE the spread, but you are still going to lose a lot.
 
OK, so what are you going to do when eventually, and it will happen (as all of the credit spread traders say) the perfect storm hits and you watch a huge portion of your money just disappear? Could happen with your strategy couldn't it?
 
Falcon:

I am in a hurry and busy with other things now, so will post later. Two points though:

1. Leverage is with respect to price of underlying (OEX, etc).

2. My models tell me that for QQQQ (which is following NDX) that today's upmove is about to end. QQQQ is at 47.18 now. Models tell me that for today heavy sellers are in area of 47.30 or below (so within 12 cents from current price). This is where I would sell some bear side premium. QQQQ 47.18 should correspond to NDX around 1919.

Bye now! See you later

Cheers!
 
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