SPX Credit Spread Trader

Starting off July quickly closing out my call spread.

Position was:

Sold 120 JULY 1235/1240 Call Spreads @ $0.30
Bought back at $0.10 for net credit of $0.20 or $2,400

Return on margin of $60,000 is 4%.

CURRENT Positions:

60 July 1125/1140 Put Spreads @ $0.50

55 July 1150/1165 Put Spreads @ $0.50


Cleared up margin and will be loading up nicely on August positions next week. Have a great holiday.

Phil
 
Additional Note

I will also try and track my daily margin requirements so that I can give a better sense of what the % return is. SOmetimes I am fully loaded and other times I have only one posiiton open so to get a better sense I will track daily margin requirements and average it. It is still back of the envelope but gives a more accurate picture.

Phil
 
Quote from optioncoach:

I am reading this article in today's Money & Investing Section of the Wall Street Journal talking about how "Narrow Market Ranges Stymie Wall Streeters".

The article is talking about how the sideways market is giving trader's the blues.

I could not stop smiling as I was reading it knowing that a sideways market is a license to print money for me. That is why I love options, there is always a way to make some money in the market no matter what the market is doing. Stock traders are sitting on their hands right now while credit sellers are making good money.

Last year I was selling otm put raito spreads on bullish stocks like GOOG and RIMM and this year Ihave moved back to SPX spreads. The more you trade over time, the more you learn how you have to adapt to changing market conditions.

Sideways market blues? Not in this thread ;)

Phil
More...

Coach,

Why did you decide to change trading strategies this year? Were the put ratio spreads not working as well?

Tim
 
Let me see if I got it right. Sometimes its just the terminology that throws me off. When u say selling put ratio spreads, are you talking about something such as this:

+1 GOOG 270p / -2 GOOG 260p for a small net credit?

If so, yeah I like those as well to play slightly bullish uptrend with potential for range bound trading.
 
Thanks for the question.

Basically last year I was doing a lot of put ratio spreads on GOOG and RIMM. GOOG especially had some nice OTM premiums when GOOG was around $185 or so. I was doing the $160/165 put ratio spreads for nice monthly credits as GOOG bounced around and stayed in its uptrend overall. I did not have any losing positions and only had to adjust one and I was getting consistent monthly credit. Unfortunately, the premiums started falling off as GOOG exploded higher (ironic isn't it?) and I was not as comfortable with the premiums I was getting for the risk. I think the situation with GOOG was more unique so I was not interested in looking into other stocks to do this with and take on the same stock specific risk.

The put ratio spreads also tied up a lot of margin since they had naked puts and this year I wanted to increase my returns and did not want so much tied up in margin so I moved to credit spreads on the SPX early in the year and started ramping them up since April as the market sort of wallowed.

The SPX credit spreads are producing much better monthly returns and I think my experience with put ratio spreads has given me tighter risk management to trade them better.

I think as the market changes, you should adapt as well. If you get stuck on a successful strategy and opportunities dry up you will be prone to search more desparately for opportunities and may put capital where it does not belong. Ajusting into other strategies lets you stay in touch with the market and adapt. One thing that never changes is a strong adherence to risk management.

My business partner and I believe that so strongly, we made the whole first chapter of our book dedicated to risk management (Option Trader Handbook: Strategies and Risk Adjustments).

Phil


Quote from dqtmg2:

Coach,

Why did you decide to change trading strategies this year? Were the put ratio spreads not working as well?

Tim
More...
 
Vulture:

You are correct. When GOOG was around $180 or so last year, I would do like long 10 $160 Puts/Short 20 $155 Puts for a neet credit of $1.50 going one month or less to expiration.

As the stock was rangebound or moved higher, the larger short position had greater time decay and eventually I could buy back the spread for a small net debit and move to another position. I rarely held positions to expiration as I do here with the SPX spreads and just kept collecting premium month to month.

If GOOG moved lower and time decay kicked in, I still could get out with a profit. Only once did GOOG move towards my short strike and I bought back half the short puts to roll into a bear put spread. GOOG stayed lower for several days and I closed that out for a profit.

WIth GOOG racing above $200, I just did not see the same large credits far OTM.

BUt I still like put ratio spreads in general because you still have chance for the stock to move towards your short strike and if it settles there by expiration you have the chance for more profit on top of the credit.

Phil

Quote from vulture:

Let me see if I got it right. Sometimes its just the terminology that throws me off. When u say selling put ratio spreads, are you talking about something such as this:

+1 GOOG 270p / -2 GOOG 260p for a small net credit?

If so, yeah I like those as well to play slightly bullish uptrend with potential for range bound trading.
More...
 
The margin requirements for put ratio spreads on SPX are way to big to sustain the positions sinice you will have naked options and the returns are not worth that risk. I get a better credit and risk/reward ratio doing th credit spreads.

However, one thing I am experimenting with on paper is to do a OTM put ratio spread and then buy a deeper OTM put (butterfly with one real far out wing lol!) This way I collect the credit, limit my risk, and have the potential for increased profits should the index move towards the short strikes close to expiration.

For now though I am sticking with the credit spreads.

Phil


Quote from LoosenUp:

Hi Optioncoach,

Why not do ratio put or call spreads or both on SPX? Is that viable?

Thanks
More...
 
Hi OC,

As I just read in one of your posts,you were using bear put SPY spreads to (partially) hedge your SPX positions..
My question is:
-Why didn't you simply go long ino the 117 SPY put?

And another question:

Did you maybe test out your strategy with Eminis on the S&P Future?
(or plan to do so)

Would be interesting to find out how good the fills are,Margin requirements etc.

Keep up your great journal,you've got fans oversees.. ;)
 
Thanks for the question. I use either bear put spreads or long puts depending on the cost. I like to buy large chunks of SPY spreads when I decide to hedge so I like spreads $0.30 or less. If I cna get it with the put outright at the strikes I want, then I will do that. Remember that last month I bought the JUNE 120 Calls as potential partial hedge outright and not the bear spread due to the low cost. It is a personal approach and one that would be different in the hands of other traders.

As to your other question, I am currently researching doing the same thing using options on futues on the S&P and e-mini S&P. One thing holding me back is OptionsXpress is still in the process of finalizing future trading. Since this account is with them I am just gonna hold off until they are capable as opposed to having money in OX and in IB for the options on futures. WIll keep you updated when it happens.

Phil


Quote from mance:

Hi OC,

As I just read in one of your posts,you were using bear put SPY spreads to (partially) hedge your SPX positions..
My question is:
-Why didn't you simply go long ino the 117 SPY put?

And another question:

Did you maybe test out your strategy with Eminis on the S&P Future?
(or plan to do so)

Would be interesting to find out how good the fills are,Margin requirements etc.

Keep up your great journal,you've got fans oversees.. ;)
More...
 
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