SPX Credit Spread Trader

Wanted to adjust the return calculations in my positions because since I am in an IRON CONDOR now, the margin is not calculated as the total margin for both credit spreads. Since one side can only be ITM at expiration, the margin requirements is usually the largest credit spread on one side only.

In my legged in IC, my largest margin requirement for the credit spread is on the Bull Put side so my actual margin for this combined position is $97,500. With a total credit of $9,275 the actual return on margin for this position is 9.5% in about 35 days.

I have repeated the positions below for reference. This is one advantage of Iron Condors, is that you get double the credit but only put one margin side at risk so the returns are somewhat higher than simply doing a credit spread one side. Of course you now have directional risk in both directions should the index miake a huge move prior to expiration higher or lower. However, I believe I have chosen strikes with a high probability of expiring OTM and with the two credits I have the ability to absorb a higher loss on one side before rolling out.

Regards,

Phil


Quote from optioncoach:


65 JUNE SPX 1110/1125 Bull Put Spreads @ $0.75 (b/a .15/1.55!)

Credit = $4,875
Margin Risk = $97,500
ROM = 5%

55 JUN 1230/1245 Bear Call Spreads @ $0.80.

Credit = $4,400
Margin Risk = $82,500
ROM = 5.33%

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Quote from optioncoach:

Wanted to adjust the return calculations in my positions because since I am in an IRON CONDOR now, the margin is not calculated as the total margin for both credit spreads. Since one side can only be ITM at expiration, the margin requirements is usually the largest credit spread on one side only.

In my legged in IC, my largest margin requirement for the credit spread is on the Bull Put side so my actual margin for this combined position is $97,500. With a total credit of $9,275 the actual return on margin for this position is 9.5% in about 35 days.

I have repeated the positions below for reference. This is one advantage of Iron Condors, is that you get double the credit but only put one margin side at risk so the returns are somewhat higher than simply doing a credit spread one side. Of course you now have directional risk in both directions should the index miake a huge move prior to expiration higher or lower. However, I believe I have chosen strikes with a high probability of expiring OTM and with the two credits I have the ability to absorb a higher loss on one side before rolling out.

Regards,

Phil
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Do you use futures to manage the risk of unusual overnite movment against your position... like a Saddam capture event... as in long a few contracts as price pt A, few contracts at price pt B, etc... ?

cj
 
I look to options on futures to place partial hedges if the market starts to move to far in one direction over time and futures are my parachute to deal with the 1% fat tail event that will send the market exploding higher or lower. I have not had to use them yet or close but they are definitely a part of my risk management plan.

Phil
 
Quote from optioncoach:

I look to options on futures to place partial hedges if the market starts to move to far in one direction over time and futures are my parachute to deal with the 1% fat tail event that will send the market exploding higher or lower. I have not had to use them yet or close but they are definitely a part of my risk management plan.

Phil
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Why use options to hedge options? Higher comissions and spreads, less liquid, seems that futures would be best for a variety of reasons.

--

http://themarkettruth.blogspot.com/
 
IN my trading plan I use OTM options on futures to provide partial hedges and potentially add more profit to the position in certain situations. I do not add them always, only occasionally when the market moves warrant it. Adding a large long or short futures position opens me up to larger losses while the OTM options on futures cost me very little to add.

For example, if the market is making a strong move lower and the advice is to short futures to hedge, I can get whipsawed if the market suddenly moves back higher stronger. I could buy them back to close out the futures position but then I am unhedged again. With my options on futures position, I take the cost of the position as insurance and deduct it from my expected profit and leave it in place until expiration. It makes for less volatile trading for me and still allows for maximum profits (minus cost of insurance). Adding futures could increase my profits but also lead to additional losses. It is not within my comfort zone to use futures to hedge unless I am in a unique dangerous situation. So it comes down to preference.

Also, the SPY, OEF and E-mini options have enough liquidity for me to trade so I still like them.

Thanks for the question!

Phil


Quote from ig0r:

Why use options to hedge options? Higher comissions and spreads, less liquid, seems that futures would be best for a variety of reasons.

--

http://themarkettruth.blogspot.com/
More...
 
Phil, thanks for your posts here. It's nice to see a real trader tying to help, and demonstrating actual trades.

I used to go to the YHOO options board a lot years ago. For those that don't know, it is definitely not your usual YHOO board filled with junk and idiots. There are many very good, long term (a rarity!) option traders posting there.

You don't promote yourself very much, so I'm guessing this is you? ETers can check Amazon.com for info on his book. Good trading to all.

C


Philip Budwick has a law degree and a Master of Science in Finance and frequently writes articles on option trading strategies and investments. Mr. Budwick is a managing director of Global Asset Investments, LLC and a managing member of Budwick InvestmentGroup, LLC, an option trading and investment software firm. He also conducts discussion groups and offers option investment training through Option Trading Coach, LLC and is an active option and stock trader


http://www.amazon.com/exec/obidos/t...f=sr_1_1/002-1583571-7324867?v=glance&s=books
 
Hi Phil, nice looking journal good to see someone doing a journal on option spreads....I have a couple of questions...

Do you spread trade the SPX exclusively or other indicies as well? (ie; OEX,CME)

Finally, what is your opinion on ThinkorSwim as an spread trading broker?

Thnks.
 
Choad:

THanks for the words. Yes I am also on the Yahoo boards as optiontradingcoach. And yes I am the same Phil who wrote that book but I try not to come across as a spammer. I enjoy posting and chatting options and usually I am here, in yahoo discssion boards and at my own option group which is in my profile.

Glad to see people are going to enjoy this journal as I think it is just as helpful to me to get the input.

Regards,

Phil


Quote from Choad:

Phil, thanks for your posts here. It's nice to see a real trader tying to help, and demonstrating actual trades.

I used to go to the YHOO options board a lot years ago. For those that don't know, it is definitely not your usual YHOO board filled with junk and idiots. There are many very good, long term (a rarity!) option traders posting there.

You don't promote yourself very much, so I'm guessing this is you? ETers can check Amazon.com for info on his book. Good trading to all.

C


Philip Budwick has a law degree and a Master of Science in Finance and frequently writes articles on option trading strategies and investments. Mr. Budwick is a managing director of Global Asset Investments, LLC and a managing member of Budwick InvestmentGroup, LLC, an option trading and investment software firm. He also conducts discussion groups and offers option investment training through Option Trading Coach, LLC and is an active option and stock trader


http://www.amazon.com/exec/obidos/t...f=sr_1_1/002-1583571-7324867?v=glance&s=books
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I mainly spread the SPX but I also use the OEX/XEO. SPX tends to have slightly higher premiums futher OTM. I am also adding in spreading options on futures (E-mini S&Ps) slowly as another means of doing my strategies.

I personally use OptionsXpress which I love but I have heard that InteractiveBrokers and ThinkorSwim are both excellent as well. Using one of these three I think is recommeded.

Regards,

Phil




Quote from zman7854:

Hi Phil, nice looking journal good to see someone doing a journal on option spreads....I have a couple of questions...

Do you spread trade the SPX exclusively or other indicies as well? (ie; OEX,CME)

Finally, what is your opinion on ThinkorSwim as an spread trading broker?

Thnks.
More...
 
Great thread. Got yelled at twice this morning for not getting to the lawn cuz I wanted to finish reading. Like a good book you can't put down.:D

Thanks in advance for the ongoing input.

Steve
 
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