SPX Credit Spread Trader

[El OchoCinco]

If those were the bid ask quotes I saw I would probably start at $1.30. The chances of getting split right down the middle are not the best in my recent experience. With sufficient time to expiration in the JULY options, you can filled close to the middle, perhaps 5 or ten cents off. So I would probably shave $0.10 to $1.20 and let it sit for a while. Most likely the b/a would shift after some time. However, in general I would not go below $1.00 to get filled. Although I recommend patience, in most cases I will have to shave and may take about 30 minutes to get a fill. But given the slow movements in the index, it is not so bad to leave the limit order open for 30 minutes or so.

The more you trade these there more of a feel you will get in where to split the bid/ask spread. There is no consistent pattern. I just try and get way more than the ask and use the mid-point as my starting point.

Phil

Quote from nlslax:

Hello Coach,
Let me make sure I'm understanding this. I went to the OX quotes and pulled up (as an example) a 15 pt spread for the July 1125/1140 Puts.
Keeping in mind that the quotes are from Saturday morning.

1125/1140 Put B - 0.70, A - 1.90

Would you have placed your initial (optimistic) order to sell at a credit of 1.30 based on these quotes? If not, then could you please let me know what you would have done to get the order placed.

Thank you.

 

[nlslax]

Thanks again for taking the time to reply.

I assume those of us trading less contracts should expect to wait longer for a fill and/or be prepared to shave a little more off the Bid.

Would you say that was a correct statement?

 

[ig0r]

Quote from nlslax:

Thanks again for taking the time to reply.

I assume those of us trading less contracts should expect to wait longer for a fill and/or be prepared to shave a little more off the Bid.

Would you say that was a correct statement?

In my experience, it's not so much less contracts but whether you're trading round lots of 10/100 that can affect your fill speed/quality (no partial). This applies to almost any instrument, a market maker won't mind filling a round lot as it is easier to hedge

--

http://themarkettruth.blogspot.com/

 

[El OchoCinco]

I have heard many different takes on this but talking to some market makers I have hear that larger round lots are easier for them to hit and hedge using futures or matching transactions. 5, 10 or 15 lots will be harder to fill than a 100 lot order. However, harder but not impossible at all. Like I said, start at the middle and shave a little off to the bid side and leave it there for about 20 minutes. do not be surprised if the bid starts creeping towards you (as long as index is not making a major move the opposite direction). As that happens it is easier to get the fills.

I have varied experiences each time I place orders so I can only give my general experience. Smaller orders splitting those b/a spreads may not get as much attention but they can still get filled.

regards,

Phil

Quote from nlslax:

Thanks again for taking the time to reply.

I assume those of us trading less contracts should expect to wait longer for a fill and/or be prepared to shave a little more off the Bid.

Would you say that was a correct statement?

 

[nlslax]

Coach,
Have questions for you as someone who is just beginning this strategy and is about to fund an account. I am not going to trade as large as you do - not even close. Probably 5-10, 15-20 point spreads on each side of the market. I like the IC strategy. Keeping in mind that I am still only looking for nickels and dimes.

If you were starting out all over again:
- What is the minimum $ you would start with?
- How would your strategy be different from what you do now?

Any additional suggestions would be appreciated.

 

[El OchoCinco]

Lots of good questions. My best advice is to start slow and remember it is a marathon not a sprint.

WIth this strategy it obviously helps to have as much as possible so you have more flexibility to roll positions and have two months covered at once. Also commissions could kill you doing 1 or 2 spreads at a time. If you do not have a lot of cash, then I would just focus on OTM put spreads (since puts have the skew) and forget the ICs until you have mroe cash. With about $10,000 you can do small lots of put spreads and make consistent money. But you will have only 1 or two positions at a time and it will be hard. As you can tell from my posts I am using a lot more capital which gives me the flexibility.

Honestly you can start as small as you want as long as commissions are not eating your profits and add more capital as you go along.

When I first started trading I was no way near as focused on risk management as I am now. I would have cut my losses tremendously if I remember the princples of risk management and truly understand risk and rewards. In my option trading book, my co-author and I spent a whole chapter on risk and trade management because it is so important (you can see my book under the booksptions section here at ET with my commentary.).

So if I could go back again I would have spent more time on trade and risk management since I feel that risk management is the key to success. Sure picking winners counts but if you give your money back to the house in the next trade, it is meaningless.

Keep following along and just use the number of contracts that fits your capital and risk tolerance.

Phil

Quote from nlslax:

Coach,
Have questions for you as someone who is just beginning this strategy and is about to fund an account. I am not going to trade as large as you do - not even close. Probably 5-10, 15-20 point spreads on each side of the market. I like the IC strategy. Keeping in mind that I am still only looking for nickels and dimes.

If you were starting out all over again:
- What is the minimum $ you would start with?
- How would your strategy be different from what you do now?

Any additional suggestions would be appreciated.

 

[El OchoCinco]

Locking in some more JUNE profits and opening margin for my JULY trades.

Closed the JUN 1230/1245 Call spread which is quoted below.

Closed for a net credit of $0.55 (paid $0.25 to close).

Net Credit = $3025
ROM = 3.67%!

What I will do when JUNE ends is post the page from OX that has all my SPX positions closed in JUNE.

Reminder of CURRENT POSITIONS:

65 JUN 1145/1160 Put Spreads @ $0.65

60 JUL 1110/1125 Put Spreads @ $0.80

95 JUL 1260/1270 Call Spreads @ $0.45

Will close the JUN Puts soon and look for my next opening for JULY.

Phil

Quote from optioncoach:


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

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

 

[yenzen]

This is the kind of stuff that is ideally suited to OPM. I cant even tell the neophytes reading this thread what a train wreck strategies like this can turn into in a fast and illiquid market. The spreads on index options products have widened considerably even as the volatility has dropped off the planet. At least with OPM, u hedge ur own blow up potential in attempting to constantly game the markets for nickles and dimes. In fact, I would go further to say that this is one of the more "crowded" strategies around these days. Notice that the majority of top performers on the Barclays Managed Fund Index have been index premium sellers. Success begets mimicry and alot of guys have been out there selling index premium driving down volatility to a point that is pretty dangerous.

Senor Zen

 

[Dr. Zhivodka]

Quote from yenzen:

This is the kind of stuff that is ideally suited to OPM. I cant even tell the neophytes reading this thread what a train wreck strategies like this can turn into in a fast and illiquid market. The spreads on index options products have widened considerably even as the volatility has dropped off the planet. At least with OPM, u hedge ur own blow up potential in attempting to constantly game the markets for nickles and dimes. In fact, I would go further to say that this is one of the more "crowded" strategies around these days. Notice that the majority of top performers on the Barclays Managed Fund Index have been index premium sellers. Success begets mimicry and alot of guys have been out there selling index premium driving down volatility to a point that is pretty dangerous.

Senor Zen

There's a very simple solution to low Vol and negative Vega.

 

[El OchoCinco]

OPM?

Sorry I did not understand what you were trying to say?

Phil

Quote from yenzen:

This is the kind of stuff that is ideally suited to OPM. I cant even tell the neophytes reading this thread what a train wreck strategies like this can turn into in a fast and illiquid market. The spreads on index options products have widened considerably even as the volatility has dropped off the planet. At least with OPM, u hedge ur own blow up potential in attempting to constantly game the markets for nickles and dimes. In fact, I would go further to say that this is one of the more "crowded" strategies around these days. Notice that the majority of top performers on the Barclays Managed Fund Index have been index premium sellers. Success begets mimicry and alot of guys have been out there selling index premium driving down volatility to a point that is pretty dangerous.

Senor Zen