SPX Credit Spread Trader

Looking at a down opening I placed a pre-market order for an August put spread and got filled on the following after the open:

Sold 65 August SPX 1125/1140 Put Spreads @ $1.30

Credit = $8,450
Margin = $97,500
Return on Margin = 8.67%

I bought on the morning dip and then the market turned higher and SPX is up about 6.45 so I may be hunting for some call spreads as well. I tihnk after opening this position my first goal may be to take some profit on the JULY positions and open up margin for more August trades.

SInce we have a longer time period to August (45 days) I can get some good credits this week or so.

CURRENT POSITIONS (including above):

65 August SPX 1125/1140 Put Spreads @ $1.30

60 July 1125/1140 Put Spreads @ $0.50

55 July 1150/1165 Put Spreads @ $0.50

Phil
 
Took off a Put spread on the nice surge in the SPX.

Position was:

60 July 1125/1140 Put Spreads @ $0.50

Closed it for a net credit of $0.30
Return = 2%

Now ready to take on more August positions. Have some limit orders in but no fills since this morning. Will update as events unfold ;)

Revised Current Positions:

65 August SPX 1125/1140 Put Spreads @ $1.30

55 July 1150/1165 Put Spreads @ $0.50

Phil
 
Although today's news was tragic, I felt the market had a knee-jerk emotional reaction and decided to add to my put spreads on the downward movement.

Sold 50 SPX AUG 1125/1140 Put Spreads @ $1.50

Credit = $7,500
Margin = $75,000
ROM = 10%.

This almost doubles my current AUG put spread positions and possibly is slightly riskier than my normal postings but I feel next week we could be back close to where we were before the news. My initial impression is that after lunch we should be down less than the current 9.60 points in the S&P to 1185. As always, risk manaagement is key and I will stay in until S&P breaks initial resistance at 1160/1165 and moves below 1155.

Thoughts and prayers to those in London.


Revised Current Positions:

115 August SPX 1125/1140 Put Spreads @ [1.40 average price]

55 July 1150/1165 Put Spreads @ $0.50


Phil
 
Hi Optioncoach,

Great post. Very interesting as I trade similar strategies in the Australian Stock options. But our liquidity is terrible. Im thinking of joining optionsexpress for better liquidity and volume.

I just got a screen of the SPX quotes and they are as follows:

spx 1185.75

aug1140p 5.6 6.5 bid ask mid is 6.05
aug1125p 4.0 4.7 bid ask mid is 4.35

Diff is 1.70

I know someone has already asked a similar qs with regards to getting the middle of the bid ask from the market maker but Im curious, in that, is it the norm to get slightly less than mid of the or any two strikes?

If so, how do you know which credit amount to ask for the spread? Do you like start at 1.7 for example and then make it smaller if it doesn't get filled till it finally does? With the US market so liquid, Im assuming there are plenty of non proffesionals that might givee you a good fill if one is lucky? Hope the qs is not too dumb.

Also does spx 1185.75 mean $1185.75?

Thanks and take your time answering because its 1.30am here and im going to sleep and will check this forum tommorrow :D
 
Phil,

It would be nice to know the SPX price when you get filled on your orders. On OptionsXpress it lists the fill price in the email it sends you on the trade.

Although I was a little skeptical at first of your preference to "leg in" to ICs and to close them prior to expiration, after watching your trades and trying them myself, I now favor these methods over one IC order and leaving it until expiration as Chris seems to prefer. There is some risk in legging in, but there is more risk in leaving the spread open until expiry IMO. If you do not leg in, you will probably not get as good of a premium making you want to squeeze all you can out of the position. But with the crazy way SPX settles, you almost never know for sure you are safe from assignment as the SPX has settled as much as 49 points different from Thursday's close.

Thanks for providing this service.

Tim
 
Sorry for the delay in getting back to you. First there are only two rules I can say are concrete when placing an order for me:

1. NEVER settle for the bid or ask when selling or buying SPX spreads.

2. When selling to open never place a limit above the midpoint of the b/a. The reason for me is that the odds are so small of getting filled at that price I would rather not waste time and simply go after the price I want.

Now my approach is I first find the midpoint between the b/a spread. Then I shave a nickle or dime off and place the order and just let it sit for a while. How much I shave depends on how wide the bid/ask spread is, the wider the spread, the more I am willing to shave. After some time, the b/a usually adapt to open orders and may hit yours. If I see no fills then I shave another nickle or dime.

There really is no magic formula to it. Doing this for a long time you just get a feeling about how you are gonna get filled and other times you just place it and let it ride. I never try and chase the bid though. If I am not getting filled after a shave or two, I really do not want to keep shaving down and down. The MM sees your orders and if they know you have a short fuse and will keep lowering your limit, they will just wait until you get lower and lower. Can I confirm that? It is just my feeling but it makes me not want to give away money to the MM more than I have to.

As for your SPX question, the number you see is just the S&P 500 index. The way it translates to a position is, since it is a cash index, it is $100 * index value.

Phil

Quote from scoobie27:

Hi Optioncoach,

Great post. Very interesting as I trade similar strategies in the Australian Stock options. But our liquidity is terrible. Im thinking of joining optionsexpress for better liquidity and volume.

I just got a screen of the SPX quotes and they are as follows:

spx 1185.75

aug1140p 5.6 6.5 bid ask mid is 6.05
aug1125p 4.0 4.7 bid ask mid is 4.35

Diff is 1.70

I know someone has already asked a similar qs with regards to getting the middle of the bid ask from the market maker but Im curious, in that, is it the norm to get slightly less than mid of the or any two strikes?

If so, how do you know which credit amount to ask for the spread? Do you like start at 1.7 for example and then make it smaller if it doesn't get filled till it finally does? With the US market so liquid, Im assuming there are plenty of non proffesionals that might givee you a good fill if one is lucky? Hope the qs is not too dumb.

Also does spx 1185.75 mean $1185.75?

Thanks and take your time answering because its 1.30am here and im going to sleep and will check this forum tommorrow :D
More...
 
Tim:

I think posting the SPX value is a good idea, I do not know why I did not bother to post that info each time. I tihnk I did it the first time and just let it slip from my mind. Thanks for reminding me.

As for different styles of trading these Iron Condors or credit spreads, trade what suits you best. My style is to take profit when I can and oen the next position and keep rolling my money forward. Others like to let the position sit and get as much as the full credit as possible and adjust when needed. I cannot say one is necessarily better than the other but the style I do here is better for me. I feel I make better returns because I can turn my money several times in a month.

Also, I like legging into the Iron Condors because I like opening the put side on down days and call side on up days, with exceptions of course. Legging in does not bother me because I am not in a rush. If I am 35 days to expiration and open the put side, I still have time to open the call side and can wait for an up day. Since I trade these frequently I like this type of swing entry to get as best a fill as I can. Again it is about personal style.

Regards,

Phil

Quote from dqtmg2:

Phil,

It would be nice to know the SPX price when you get filled on your orders. On OptionsXpress it lists the fill price in the email it sends you on the trade.

Although I was a little skeptical at first of your preference to "leg in" to ICs and to close them prior to expiration, after watching your trades and trying them myself, I now favor these methods over one IC order and leaving it until expiration as Chris seems to prefer. There is some risk in legging in, but there is more risk in leaving the spread open until expiry IMO. If you do not leg in, you will probably not get as good of a premium making you want to squeeze all you can out of the position. But with the crazy way SPX settles, you almost never know for sure you are safe from assignment as the SPX has settled as much as 49 points different from Thursday's close.

Thanks for providing this service.

Tim
More...
 
Phil:

I've been using basically the same strategy for one year. However, much smaller account size than yours along with these differences:

A. Usually, only one position per month. Trying to go as far OTM as I can to capture between 5-12% of margin requirement.

B. I have used total account value every month for margin.

C. Hold to expiry (unless I can close a position for .05 - .10).

Have you ever mathematically calculated the dollar differences if you compared holding your open positions til close vs. your "seeking nickles and dimes" approach which entails much more trading fees?

With your positions so significantly OTM when opening, I would be extremely interested in determing if closing simply due to time decay ($$$) and reopening new outweighs "buy and hold".

As you so correctly stated, it's about making money at the end of the month...if there is a better way to skin the cat, I want in. Any thoughts??
 
Waited for more upside after the emotional reaction yesterday to add call spreads and leg into the Iron Condor:

Sold 115 SPX AUG 1260/1275 Call Sprds @ $0.60 (b/a .25/1.00)

SPX @ 1203.79

Credit = $6,900

Margin = Paired with August puts this IC has margin on one side only of 115*1500 = $172,000. SO return can be viewed as total credit on put and call spread on $172,000. However since I tend to leg out as well we will look at this individually as a margin of $172,500.

ROM = 4%.


Revised Current Positions (not including above):

115 August SPX 1125/1140 Put Spreads @ [1.40 average price]

55 July 1150/1165 Put Spreads @ $0.50


Phil
 
Craig:

As long as you have a good risk management plan and stick to it and make money I see nothing wrong with your approach.

As for my method of trading as opposed to holding until expiration, it is hard to say for sure which would regularly make more money. I am sure some months I would have made more money holding the whole thing to expiration and some I made more turning my money over a few times. One main reason I trade it the way I do is best explained in my August position.

I opened the August positions (although legged in) with about 45 days to expiration (I rounded up for ease). If I held that and every similar trade to expiration, I would be able to make about 8 full trades a year. (quick and dirty is 45/365). I choose do do it my way because I can have trades closing every single month and therefore have 12 months of income. It is my view that looking on a yearly basis I can turn my money faster and make more money trading it the way I am.

It is like any business decision. Low margins and greater frequency of inventory turnover can lead to more profits than higher margin but much lower turnover. But trading is a much different approach then hold to expiration so I would recommend keep doing it the way that best fits your stlye and experience. Holding to expiration will still produce significant doulbe digit returns so how could you feel bad about that lol.

Also for me who at times gets anal about risk management I like taking profits off the table and that risk, of course to be replaced by a new position. Moreover, I only consider profits when the credit is at least 50 - 60% mine.

Our approaches are different but both do quite well and I would advise that the significant factor in choosing one way or the other is based on your own trading preference and style. I do NOT use my whole account value for Iron Condors margin so maybe that is why ai flip more often, to get more bang for my buck lol.

So do not switch styles unless you think it will suit you better. If you are making money with your approach then it certainly aint broke. I am sure there are always better ways to skin a cat, but as long as the cat is skinned and the cats keep coming....

Phil
 
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