SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Is there a typo in your post?
Phil
Phil
I will come back in a bit and go into it, but I may have covered this in another part of the thread so do a quick scan. Basically the SPX puts would be quite expensive and SPYs ar emuch cheaper being 1/10th the index value. I am not hedging completely as that would be too expensive. I am adding the puts so that if the market does continue to drop I have some profits in the SPYs to offset, partially or totally, any costs in adjusting the positoin or closing it. This can reduce my loss should I need to take one and is a way for me to partaially hedge. When OX finally adds futures I will start using options on futures (ES) to partially hedge as well and open positions.
Phil
Phil
Phil,
Thanks for the quick response. I've been trying to read through the thread for answers to questions before I post them and it's almost like a book.
I noticed the last SPX put spread you put on was for the closest month. I write a short time span and keep rolling to give the buyer the least amount of time to be right. Is that your normal strategy or is there anything you look for in a stock/index to go out longer, like the EBAY spread we just talked about?
I am more comfortable selling premium with 45 days or less to expiration to get the most out of time decay and to give the position as little time as possible to move agsint me. Also, using the front month options lets me open and close positions each month so I can keep my money moving as much as possible.
Selling premium with 6 months or even a year to expiration is done by people but I choose not to since time decay is the best friend of premium sellers but it only really kicks in during the last 30 to 40 days to expiration.
There are strategies where premium is sold with long time to expiration, such as selling LEAP puts or other long term credit spreads which are conservative and for those who do not want to monitor their portfolios all day long and just want simple annual returns (i.e. deep OTM naked put sellers).
For the strategies I discuss here I really do not like to go out more than 45 days.
Phil
Selling premium with 6 months or even a year to expiration is done by people but I choose not to since time decay is the best friend of premium sellers but it only really kicks in during the last 30 to 40 days to expiration.
There are strategies where premium is sold with long time to expiration, such as selling LEAP puts or other long term credit spreads which are conservative and for those who do not want to monitor their portfolios all day long and just want simple annual returns (i.e. deep OTM naked put sellers).
For the strategies I discuss here I really do not like to go out more than 45 days.
Phil
Phil,
I understand your philosophy of keeping the money rolling forward in the 1st week of each month to the next month giving you 45 days to expiration -- you've explained it very clearly.
I'm wondering what your thoughts are of using a portion of your capital (say 10%) for a 3-week-to-expiration play. For example, next week, you would buy a wide IC for AUG, not SEP. The credit would be small with only 3 weeks to exp., but you would be capturing the sweet spot of the theta decay curve. The high gamma in exp. week should not be of concern since you use very wide ICs...?
I understand your philosophy of keeping the money rolling forward in the 1st week of each month to the next month giving you 45 days to expiration -- you've explained it very clearly.
I'm wondering what your thoughts are of using a portion of your capital (say 10%) for a 3-week-to-expiration play. For example, next week, you would buy a wide IC for AUG, not SEP. The credit would be small with only 3 weeks to exp., but you would be capturing the sweet spot of the theta decay curve. The high gamma in exp. week should not be of concern since you use very wide ICs...?
Remember I said expirations of 45 days or less. An expiration 21 days out (3 weeks) certainly falls within that time frame and this thread contains more than a few positions where I have scalped premium in the last weeks leading into expiration.
I always keep cash margin available for positions as expiration gets closer on top of my other open spreads and ICs. Just a week or two ago I did a short-term call spread which I had to hold to expiration given the move in the underlying and it was successfull.
As for consistently doing 3-week Iron Condors, it all depends. If the credit is worth it and the strikes are far enough apart I certainly would do it, but would not fixate on doing it regularly. I get good returns going out 30 - 45 days and in the meantime add call or put spreads for additional premium when I see a good opportunity.
For example I have the AUG IC and just added an additional AUG Put spread since I liked the strikes and premium received. I am not adverse to adding a call spread to this if we get a good swing higher.
SO the short answer is yes, it is viable to do but the better answer is to not commit yourself to doing it but rather check month to month to see if it is viable based on the strikes, premiums, AND most important, what the index is doing. I mentioned previously that the ICs are working quite well over the summer but in September I may be more inclined to move towards just put spreads given potential for Fall rallies.
So go ahead but remember that the index will tell you what is best to do, not the other way around. As long as you approach it with the same risk and trade management principles, you should be able to make it work. Just do not go chasing premium with 3 weeks left and allow yourself to select strikes you would not choose if you have more time.
Phil
I always keep cash margin available for positions as expiration gets closer on top of my other open spreads and ICs. Just a week or two ago I did a short-term call spread which I had to hold to expiration given the move in the underlying and it was successfull.
As for consistently doing 3-week Iron Condors, it all depends. If the credit is worth it and the strikes are far enough apart I certainly would do it, but would not fixate on doing it regularly. I get good returns going out 30 - 45 days and in the meantime add call or put spreads for additional premium when I see a good opportunity.
For example I have the AUG IC and just added an additional AUG Put spread since I liked the strikes and premium received. I am not adverse to adding a call spread to this if we get a good swing higher.
SO the short answer is yes, it is viable to do but the better answer is to not commit yourself to doing it but rather check month to month to see if it is viable based on the strikes, premiums, AND most important, what the index is doing. I mentioned previously that the ICs are working quite well over the summer but in September I may be more inclined to move towards just put spreads given potential for Fall rallies.
So go ahead but remember that the index will tell you what is best to do, not the other way around. As long as you approach it with the same risk and trade management principles, you should be able to make it work. Just do not go chasing premium with 3 weeks left and allow yourself to select strikes you would not choose if you have more time.
Phil
Took some profits today on the put side of the Iron Condor.
Original position: 115 SPX AUG 1140/1155 Put Spreads @ $0.60
Closed for net credit of $0.40
Credit = $4,600
Margin = $172,500
Return = 2.67%
The return may not seem high but it was over the past 3 weeks. Also, if you have been following the thread this is the second time I have closed the puts on this IC so I have been rolling them up and taking profits as the market has moved higher. I may look into higher strike puts but since I recently added the 1175/1185 I may hold off and let this week pass to look towards SEPT.
Althgouh some of you would advocate holding longer for more credit, I still like rolling my money over as often as I can keep it moving. I still have the put spread and the call side opened earlier. Current positions are summarized below. With more open cash margin I will be looking for more opportunities over the next week or two before committing to SEPT.
This month has been better than last month and after Friday I will post the results in a better way than last month. This month I will group the spreads together instead of each option as OX did it.
Current Positions:
100 SPX AUG 1175/1185 Put Spreads @ $0.50
115 SPX AUG 1260/1275 Call Spreads @ $0.60
Phil
Original position: 115 SPX AUG 1140/1155 Put Spreads @ $0.60
Closed for net credit of $0.40
Credit = $4,600
Margin = $172,500
Return = 2.67%
The return may not seem high but it was over the past 3 weeks. Also, if you have been following the thread this is the second time I have closed the puts on this IC so I have been rolling them up and taking profits as the market has moved higher. I may look into higher strike puts but since I recently added the 1175/1185 I may hold off and let this week pass to look towards SEPT.
Althgouh some of you would advocate holding longer for more credit, I still like rolling my money over as often as I can keep it moving. I still have the put spread and the call side opened earlier. Current positions are summarized below. With more open cash margin I will be looking for more opportunities over the next week or two before committing to SEPT.
This month has been better than last month and after Friday I will post the results in a better way than last month. This month I will group the spreads together instead of each option as OX did it.
Current Positions:
100 SPX AUG 1175/1185 Put Spreads @ $0.50
115 SPX AUG 1260/1275 Call Spreads @ $0.60
Phil