SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Stanford: I have sent the email address. There was a bounce back, and I resent. I have not had a chance to look at the emails yet. I plan to do later. If it is urgent that I look earlier, let me know.
Falconview: It is normal that you understand, then get confused, then understand. If you make two steps of understanding, followed by one step of confusion, you are still heading up in understanding.
I think you may also have some information overload.
Premium and volatility are two "different things", but related. For the moment at least, I would reason with either of the two I feel comfortable with.
In your broker screen, you should have the premium (which is in dollars so easier to understand), and volatility which is a number.
The premium of an option is composed of two things: Intrinsic value and the time value. The ATM and OTM options have intrinsic value of zero. The border between ITM and OTM, is the ATM options which have only time value.
Volatility is a way to quantify the time value. That is why at any given strike, the time value of the put and the time value of the call are equal, but the premiums (premia) are different because one of the options (put or call) is in the money (if the strike is not the current price). If this paragraph sounds like greek to you, over time it will be clearer.
Here is a way for you to maybe see things different. Options pricing is not concerned about direction, it is concerned about the magnitude of the move. In option pricing, the future direction is considered neutral/sideways. So what they try to price is how big or small will be the deviation from the current price (not which direction it is).
That is why the straddle is useful. It tells the deviation in dollars as priced my options.
If you think that the deviation is going to be larger than what is in the straddle, you do not sell the straddle. If you think the deviation is going to be less that the price of the straddle, you sell the straddle.
Let us stop here to allow you time to digest this, and avoid information overload.
Falconview: It is normal that you understand, then get confused, then understand. If you make two steps of understanding, followed by one step of confusion, you are still heading up in understanding.
I think you may also have some information overload.
Premium and volatility are two "different things", but related. For the moment at least, I would reason with either of the two I feel comfortable with.
In your broker screen, you should have the premium (which is in dollars so easier to understand), and volatility which is a number.
The premium of an option is composed of two things: Intrinsic value and the time value. The ATM and OTM options have intrinsic value of zero. The border between ITM and OTM, is the ATM options which have only time value.
Volatility is a way to quantify the time value. That is why at any given strike, the time value of the put and the time value of the call are equal, but the premiums (premia) are different because one of the options (put or call) is in the money (if the strike is not the current price). If this paragraph sounds like greek to you, over time it will be clearer.
Here is a way for you to maybe see things different. Options pricing is not concerned about direction, it is concerned about the magnitude of the move. In option pricing, the future direction is considered neutral/sideways. So what they try to price is how big or small will be the deviation from the current price (not which direction it is).
That is why the straddle is useful. It tells the deviation in dollars as priced my options.
If you think that the deviation is going to be larger than what is in the straddle, you do not sell the straddle. If you think the deviation is going to be less that the price of the straddle, you sell the straddle.
Let us stop here to allow you time to digest this, and avoid information overload.
Trading Journal
Lordy with so much knowledge, you must be RICH!!! ( grin )
I liked the comment on the ATM and the OTM has ZERO intrinsic value. Nice bit to remember that one. Sort of one of those quickie nuggets of gold to remember.
I also liked the idea that options are priced for a sideways, or neutral market, but increase, or decrease according to estimates on deviation.
Some quick arithmetic and I get around a neutral price for CALLS at $3.50 on the bid and $4.00 on the ASK. While on PUTS about $3.00 on the bid and $3.50 on the ASK. At the ATM.
So in quickie form, I'm thinking if the prices deviate from that, I can tell which side is premium ballooning for the market direction and pressure of buying. That's good to know!
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This bit didn't gybe? If you think the deviation is going to be big don't sell the straddle. That is assuming the STRADDLE is only going to make money from the THETA? Time Decay? But does not the short straddle also make money from premium ballooning collapse when the market is moving and then stalls and starts to reverse? I must have been playing the Theta last week? Will try it this week also. I was though, trying to play the collapse in volatility today and yesterday, but did not catch it. Maybe it is not even there?
Lordy with so much knowledge, you must be RICH!!! ( grin )
I liked the comment on the ATM and the OTM has ZERO intrinsic value. Nice bit to remember that one. Sort of one of those quickie nuggets of gold to remember.
I also liked the idea that options are priced for a sideways, or neutral market, but increase, or decrease according to estimates on deviation.
Some quick arithmetic and I get around a neutral price for CALLS at $3.50 on the bid and $4.00 on the ASK. While on PUTS about $3.00 on the bid and $3.50 on the ASK. At the ATM.
So in quickie form, I'm thinking if the prices deviate from that, I can tell which side is premium ballooning for the market direction and pressure of buying. That's good to know!
*******************************
This bit didn't gybe? If you think the deviation is going to be big don't sell the straddle. That is assuming the STRADDLE is only going to make money from the THETA? Time Decay? But does not the short straddle also make money from premium ballooning collapse when the market is moving and then stalls and starts to reverse? I must have been playing the Theta last week? Will try it this week also. I was though, trying to play the collapse in volatility today and yesterday, but did not catch it. Maybe it is not even there?
Just a quick one. At around 1:35PM, I noticed stalling in the upmove of the QQQQs, and I covered my short puts I sold earlier to play this upmove. QQQQ were 45.80 around 1:35PM, and I also noticed they did not fill me even when stock was rising. So I figured market markers were up to something, and I changed my order to hit their ask (because I was covering short puts).
What do you observed Falconview?
Other remarks: Bond market is at an important level. If it breaks the support, stocks may continue higher. If Bonds stall, I would expect stocks to mirror it as well. You now know that if bonds go up, stock market goes down. Bonds seem to say that if this happens today, it would be limit in the move.
Ten year bonds are at 125'22. They need to get to 125'17 to break support. It is 5/32 away. Low of the day (achieved last night) is 125'19.
It seems as if markets are looking among themselves to see who will brink first.
What do you observed Falconview?
Other remarks: Bond market is at an important level. If it breaks the support, stocks may continue higher. If Bonds stall, I would expect stocks to mirror it as well. You now know that if bonds go up, stock market goes down. Bonds seem to say that if this happens today, it would be limit in the move.
Ten year bonds are at 125'22. They need to get to 125'17 to break support. It is 5/32 away. Low of the day (achieved last night) is 125'19.
It seems as if markets are looking among themselves to see who will brink first.
I will answer later as I am busy now. Your sentences on deviation and ATM/OTM suggest a crisp understanding of that part. Congrats! Do not let it that understanding leave your head after you have managed to get it inside .
I have also to pay attention to bonds to see if they will break. Now at 125'21. Closing in on the target ....? This is like two armies closing on each other, and you want to see if there will be a fight and who will run through the other.
I'll give it one more hour, then I'll put on my Vertical Credit Spread in my account. If I can get two strikes out. If not, c'est la vie!
Certainly the market is futzing around. May be because people are still on holidays?
Will also do a memo paper SHORT STRADDLE, not at all sure I have this figured out yet? Overnight to close SHORT STRADDLE tomorrow morning.
You are trading LONG PUTS in this short a market. How do you cover your market maker spread? I don't see movement enough to do that in the OEX.
Certainly the market is futzing around. May be because people are still on holidays?
Will also do a memo paper SHORT STRADDLE, not at all sure I have this figured out yet? Overnight to close SHORT STRADDLE tomorrow morning.
You are trading LONG PUTS in this short a market. How do you cover your market maker spread? I don't see movement enough to do that in the OEX.
lOOKS like we will end the day with an INSIDE BAR DAY to the upside?
The movement does not look strong at all.
The movement does not look strong at all.
Bonds just touched the 125'17 level. This should help stocks hold gains or rise. If the bonds sell off, we may have stock market mini rally? The danger I see for tomorrow and Friday is the unfilled gap of yesterday. Friday would be a horizontal day, if market makers do their pinning job well.
No. I sold the puts (short) last Thursday and Monday. They gain if time passes, volty declines, and/or stocks rise. All three factors took place in this case. I sold when they were in the money at the time, so they also gained from the loss of their intrinsic value. I covered them today.
On the QQQQ, it is NOT an inside bar, assuming we mean the same thing by the word inside.