SPX Credit Spread Trader

Here is the option expiration information for SPX index options taken from the CBOE website:

Last Trading Day:
Trading in SPX options will ordinarily cease on the business day (usually a Thursday) preceding the day on which the exercise-settlement value is calculated.

Settlement of Option Exercise:
The exercise-settlement value, SET, is calculated using the opening (first) reported sales price in the primary market of each component stock on the last business day (usually a Friday) before the expiration date. If a stock in the index does not open on the day on which the exercise & settlement value is determined, the last reported sales price in the primary market will be used in calculating the exercise-settlement value. The exercise-settlement amount is equal to the difference between the exercise- settlement value, SET, and the exercise price of the option, multiplied by $100. Exercise will result in delivery of cash on the business day following expiration


So they expire on Thursday which lets you sleep easy on Friday lol.

Phil





Quote from just21:

Isn't options expiry on saturday morning? I see from the calendar that AM index options expire on thursday. What are they?
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As you indicated, the return on margin (non span) is 5%. Can you comment on what this trade returns as compared to the account value and what your thoughts are on what is adequate risk for an account and what your annual goals are for your account?

Thanks.
 
I can only give you my opinion since adequate risk and goals is a personal thing and different for every trader. I am basically looking for 2 - 3% a month consistently. Even thbough my initial trade return o margin was 5%, I may add some hedges that brings that return down slightly. SOme months I get the 4 - 5%, others I am 1 - 3% so it averages out.

Assuming I can do these 10 times without any losses, I shoot for 15 - 20% on the conservative side of my whole portfolio (not just margin at risk). Actual returns are much higher on a good year but I like to be conservative in these goals so I do not get too greedy. With 1 drawdown I usually end up between 10 and 15% on the conservative side. With two it can be between 5 and 10% for the year but in a year with two drawdown it usually means the market is having a flat to bad year so being positive is still good for me. This comes from real trading history and some backtesting. To cut right to the fat, I want 15% a year.

Now my capital is not sitting in cash, I have it invested elsewhere and use it as collateral for my spread trades- getting two bangs for the same bucks. Credit spreads do not require the maring to be in cash. So I actually earn more than just the spreads which boosts my overall return or hedges partial losses.

AS for adequate risk, this is a personal thing. I would never put 100% of the portfolio at risk using this strategy and usually come closer to 50% with strict risk management. Due to leverage the return on the 50% of the portfolio is more than enough to account for significant returns on the whole portfolio. I will not elaborate more on how I have the 100% invested since I have to keep some things proprietary but it helps boost my overall returns.

I do not want to get into my personal returns because I just want to use this to show the trades and keep discussion going on these type of positions, not focus on my trading performance.

SO after some longwindedness, the target goal is 15%. In a good sideways trending market, the actual performance in the past has been over 20%. Shooting for 15% keeps my head level. Some might want over 20% as a target given the risk but it comes down to your individual perception and goals.

I hope i have answered the question, please feel free to inquire further. The discussion is helpful to all as well as to myself.

Phil




Quote from EliteThink:

As you indicated, the return on margin (non span) is 5%. Can you comment on what this trade returns as compared to the account value and what your thoughts are on what is adequate risk for an account and what your annual goals are for your account?

Thanks.
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Spreads appear absurd on SPX options but they are not at all impossible to split the b/a asks. I shoot for the middle and shave a nickle or two off after a few minutes and it fills. Sometimes you get better fills than others but overall it is not difficult to collect more than the bid. This is a wrinkle to trading SPX but given the nice premiums, it is the bad with the good.

Phil

Quote from ssternlight:

Must have been an easier trade yesterday. The spread on the 1090 is absurd -- 1.5 x 2.10
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TRADE ALERT!

Well with today's rally and margin clearing up tomorrow I decided to take my profit in this position and look for a new entry.

Remeber the trade was:

61 JUN 1075/1090 Bull Put Spread @ $0.75

Credit = $4,575
Risk = $91,500

I closed out the spread at a debit of $0.45 for a profit of $0.30 or net credit of $1,830 for as profit of 2%.

I would not normally roll out so quickly but for 40% of the credit that fast and being able to enter into large positions with margin clearing up I had to jump on it.

SO I am out of this position and will let you know of the new one which is currently an open order as we speak.

Phil


Quote from optioncoach:

To add a little variety I will start a Journal of the credit spread trades I make month to month on the SPX, XEO, OEX and possibly RUT.

RIght now my current trade open is (which can be opened today):

61 JUN 1075/1090 Bull Put Spread @ $0.75

Credit = $4,575
Risk = $91,500

Return = 5.00%
Time to Exp. = 30 days

I basically look for nickles and dimes month to month and add more to the positoin or add different strikes based on market moves.

Will keep it updated for those interested in selling spreads against indexes.

Phil.
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After closing the above position I got filled on the following trade. After a large rally higher, I wanted to put on a bear call spread to play the swing and use deep OTM strikes as I expect the market to still have overhead resistance.

55 JUNE 1230/1245 Bear Call Spreads @ $0.75

Credit = $4125
Margin Risk = $82,500
ROM = 5%

It has been years since the S&P was that high and I do not expect it to make 4 year highs in the next 30 days, especially the start of summer.

Phil
 
Quote from optioncoach:

After closing the above position I got filled on the following trade. After a large rally higher, I wanted to put on a bear call spread to play the swing and use deep OTM strikes as I expect the market to still have overhead resistance.

55 JUNE 1230/1245 Bear Call Spreads @ $0.75

Credit = $4125
Margin Risk = $82,500
ROM = 5%

It has been years since the S&P was that high and I do not expect it to make 4 year highs in the next 30 days, especially the start of summer.

Phil
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Phil,

How do you choose the long strike? I mean, looking at the current quotes (mid-points) a 5-pt spread (1230/1235) gives a better risk/reward ratio than a 15-pt one you got.
 
I do not leg I place the order as a spread and try and split the spread bid/ask. This gives the market maker the flexibility to determine where he or she wants to shave the bid/ask soread on each leg to give me the fill. I would rather do the spread order than do a leg in and get burned on one side.

Phil

Quote from ssternlight:

Interesting...

Are you legging into these spreads? If so, do you do the next leg right away at market or do you hang on for your price?
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