SPX Credit Spread Trader

Andy:

I should start chargin' for this LOL... just kidding they are GREAT questions.

1. 45 contracts is because I had a preset limit in my mind of spending $2,000 on the hedge. Just the largest amount I was comfortable spending given the credit on the line.

2. Closing the position right now is not in my risk management plan since I am still 15 points OTM. I would not be prudent to just take a large loss when I am still OTM and can still adjust higher to limit my losses. Adjustment and rolling higher is my next move, but I might wait until I see some strength higher.

3. Good question and it really is just a personal preference thing. I find the SPYs having tigher spreads and cheaper relative premiums if I want to add calls, puts or spreads. Sometimes I will just take profit in the SPYs and roll the SPX spreads and the tighter b/a in the SPYs make it easier for me to get out. There would be nothing wrong with also doing 5 SPX calls at 1260 or even a 1260/1270 Call spread. It is just what I have done and when OX adds options on futures I will actually replace SPY with options on e-minis.

Phil




Quote from andysmith:

Phil,

"I bought 45 SPY AUG 126 Calls @ $0.45 ($2,025)."

1) Can you please walk us through how you came up with 45 contracts?

2) What is the tradeoff if you close the position right now instead of hedging with the SPY calls?

3) Why didn't you just buy 5 SPX calls instead of ~50 SPY calls?

Thanks!
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Mode:

Ok great, sorry I missed your question buried in the thread.

Phil

Quote from modegolf:

Hi Phil,

Your response to Andy answered my question regarding adjusting...so no need to reply.

Thanks,

modegolf
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Hey Phil,

I had open the AUG 1180/1165 bull put spread for a credit of $.80 I decided to book some profits in light of the bump up today and closed it today for $.25 profit of $.55 Now I would like to re enter my bull put spread at the 1205/1190 strikes for about $.75 credit. Also, I still have open the 1290/1275 bear call spread on the other side.

I see some support for the SPX at 1220 and then about 1205-1200 levels. I believe the 1205 has a current prob of expiring ITM at around 11%. What do you think of the 1205 level and this rollup trade with about 2 weeks to go for AUG?

Thanks Coach!! :)

Jeff.
 
I have never done a credit spread but after reading this thread I would like to try.

Can somebody suggest some trade for august. How many min contracts I should do to have some reasonable income.

credit spread on spx

thanks
 
Jeff:

Congrats on the nice trade. I still have my put spreads but I have limit orders to get out but I am being greedy on the b/a spread so we will see if I get filled. I am far enough OTM to not worry.

I also see 1225-ish and 1200-ish as past support areas but 1200 or so is as high as I would go for August as long as the premium was right. 1190/1205 certainly sounds like good strikes with about 2 weeks to go to expiration. My motto is "Nickles and Dimes a Thousand Times!"

Good luck!

Phil

Quote from zman7854:

Hey Phil,

I had open the AUG 1180/1165 bull put spread for a credit of $.80 I decided to book some profits in light of the bump up today and closed it today for $.25 profit of $.55 Now I would like to re enter my bull put spread at the 1205/1190 strikes for about $.75 credit. Also, I still have open the 1290/1275 bear call spread on the other side.

I see some support for the SPX at 1220 and then about 1205-1200 levels. I believe the 1205 has a current prob of expiring ITM at around 11%. What do you think of the 1205 level and this rollup trade with about 2 weeks to go for AUG?

Thanks Coach!! :)

Jeff.
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I am not aware of your trading background so I can only assume beginner unfortunately. In that case, having never done credit spreads, I would recommend trying on paper or virtual trading to see how they work without risking real money yet. better to learn for free before putting real money in.

If you are knowledgable on options then I would advise starting out as small as possible and only use a small % of your portfolio until you are really comfortable and adept at this strategy.

Finally, I would not ask others for a trade suggestion as we all have different reasons for our strike and month selection and what premiums we are satisfied with. If you re-read this thread, you can see various discussions on strike selection and what premiums I like and get a feel for possibly how to select a trade for yourself. It is better to learn this way so it becomes intuitive instead of blindly following others.

I caution beginners and those not familiar with credit spreads to not be allured by the premiums. Not to toot my own horn but I have a lot of experience and background so please do not let this thread imply this is so easy. If you want to take the first step, I suggest you study the SPX, how credit spreads work and risk management to better prepare you to start trading this way.

Good Luck

Phil

Quote from osho67:

I have never done a credit spread but after reading this thread I would like to try.

Can somebody suggest some trade for august. How many min contracts I should do to have some reasonable income.

credit spread on spx

thanks
More...
 
Have you ever done an adjustment to just the short side of the spread? What I mean is if you have a 15 point spread, buying back the short option and selling an option that is 5 or 10 points from your long option? I'm trying to work this through to see if this makes sense. It would move the short farther from where the underlying is trading (lower risk), lower margin requirements (more contracts could be sold to increase the credit but with the same margin as before the adjustment) but increase transaction costs.

Just thinking out loud here so please be gentle,
ryan
 
Ryan:

Good question. The problem with just rolling the short is that you will have a large net debit to buy back the short call and sell another one, say 5 points higher, while leaving the long in place.

If you buy back the short AND sell the long at the same time, then you reduce the cost of closing the spread to roll higher. If you were gonna move the short strike 5 points higher, it may be better to simply move the whole spread 5 points higher to reduce the cost of the adjustment.

Look at my 1260/1275 spread and compare rolling the 1260 to a 1265 call or rolling the 1260/1275 spread to a 1265/1280 spread.

Phil

Quote from ryank:

Have you ever done an adjustment to just the short side of the spread? What I mean is if you have a 15 point spread, buying back the short option and selling an option that is 5 or 10 points from your long option? I'm trying to work this through to see if this makes sense. It would move the short farther from where the underlying is trading (lower risk), lower margin requirements (more contracts could be sold to increase the credit but with the same margin as before the adjustment) but increase transaction costs.

Just thinking out loud here so please be gentle,
ryan
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