SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Newbie...
I do not remember exactly but it was about $0.20/$2.10 or so and after a while it shrunk to $0.40/1.50 and got filled. The b/a moved around as the market kept dropping but I got filled when the SPX was pretty much near its low.
Phil
I do not remember exactly but it was about $0.20/$2.10 or so and after a while it shrunk to $0.40/1.50 and got filled. The b/a moved around as the market kept dropping but I got filled when the SPX was pretty much near its low.
Phil
Send a nickle to me so we both get filled at $0.95... fair is fair LOL.
Nice fill. I should have been more agressive to try and get over $1.00 but on such a down day I did not want to miss out as I did the day before waiting to get filled. I started at $1.00 and after a while lowered it to $0.95 and after a while as the bid creeped up it filled.
Phil
Nice fill. I should have been more agressive to try and get over $1.00 but on such a down day I did not want to miss out as I did the day before waiting to get filled. I started at $1.00 and after a while lowered it to $0.95 and after a while as the bid creeped up it filled.
Phil
I liked the 1175 puts because, not only was there two levels of previous support at 1225 and 1200 but also 1275 was as high as I felt comfortable going and still receive a worthy credit. The delta of .16 is slightly higher than my usualy entry but it is still quite a low delta. Also, my bias towards the end of August/beginning of September is sideways to bullish so did not mind creeping up higher. The 1175 strike is also about 50 points OTM which is also a mental range I am confortable with.
I did not want to push it and look at 1185 or 1190 as short strikes because a break through 1200 could put the index below 1190 and the 1175 still gives me more room.
Finally the strikes I selected had a really nice return for being that far OTM so all around it met a lot of my comfort risk management criteria.
Phil
I did not want to push it and look at 1185 or 1190 as short strikes because a break through 1200 could put the index below 1190 and the 1175 still gives me more room.
Finally the strikes I selected had a really nice return for being that far OTM so all around it met a lot of my comfort risk management criteria.
Phil
Andy:
There really is no exact science to it. I chose the 10 point spread because I liked the premium and distance of the spread and my chances of getting a good fill between it. Also, I already determined I was looking to use about $100,000 for this position so I was looking for the best return I could find within the strike selection parameters I was comfortable with. I was all over looking at the 1170/1175 (had a limit order up for 1 hour and no fill) 1160/1175 and the 1165/1175.
So when you decide on a general strike for locating the short, the only real factor in whether you choose this 15 point spread or that 10 point spread is preference at the time looking at the premiums and distance of the b/a spread.
Phil
There really is no exact science to it. I chose the 10 point spread because I liked the premium and distance of the spread and my chances of getting a good fill between it. Also, I already determined I was looking to use about $100,000 for this position so I was looking for the best return I could find within the strike selection parameters I was comfortable with. I was all over looking at the 1170/1175 (had a limit order up for 1 hour and no fill) 1160/1175 and the 1165/1175.
So when you decide on a general strike for locating the short, the only real factor in whether you choose this 15 point spread or that 10 point spread is preference at the time looking at the premiums and distance of the b/a spread.
Phil
Gypsies
Remember I did not PURCHASE Sept puts, I SOLD September puts.
You will never accurately guess the low for any pullback. I waited for a decent pullback to get into the Sept puts but I gave up on the ol' pick the bottom/pick the top a long time ago. It just makes you miss too many opportunities.
Remember my strike selection was based on the analysis that the SPX would not reach 1175 by Sept expiration (or before for that matter). I wanted a downward correction to get better premium when I went in with this much time to expiration. However I do not necessarily predict that the correction is finished. I of course would love to get it at the bottom to get the most premium but my approach is to be happy with the premium I get, because that is my income, not the premium I could have gotten.
If the premium is enought to make me place the trade, then increases from continued downward movement are fine because my credit is received and now my goal is to stay OTM, not determine how I could have made even more money.
So find a good entry point but do not wait for the absolute low or high to make the entry because you will miss it more often than not.
Phil
Remember I did not PURCHASE Sept puts, I SOLD September puts.
You will never accurately guess the low for any pullback. I waited for a decent pullback to get into the Sept puts but I gave up on the ol' pick the bottom/pick the top a long time ago. It just makes you miss too many opportunities.
Remember my strike selection was based on the analysis that the SPX would not reach 1175 by Sept expiration (or before for that matter). I wanted a downward correction to get better premium when I went in with this much time to expiration. However I do not necessarily predict that the correction is finished. I of course would love to get it at the bottom to get the most premium but my approach is to be happy with the premium I get, because that is my income, not the premium I could have gotten.
If the premium is enought to make me place the trade, then increases from continued downward movement are fine because my credit is received and now my goal is to stay OTM, not determine how I could have made even more money.
So find a good entry point but do not wait for the absolute low or high to make the entry because you will miss it more often than not.
Phil
NLSLAX:
You are right the questions require some long answers but I can give you some short one to get your thinking.
1. Pros and cons of taking this trade. Since I am a risk manager, I will list the Cons first:
Cons:
a. You are new at this. These are not easy trades although they are deceptively simple. The risk is real and it requires some mental fortitude to stay with it through the price swings. It is easier to do once you have traded for a while and have a better feel on options in general.
b. You are not comfortable with the adjustments that might be necessary. The key to this position, which has become my mantra, is that its success all comes down to risk management. The adjustments are pretty much the main approach you are going to use to limit your losses if and when necessary. Keeping the losses limited and small is how you can absorb one or two losing positions and still have a significant profit overall at the end of the year (Nickles and Dimes a Thousand Times is still profitable even if once a yea you give a quarter back). So my advice is to think about the adjustments. Pretend you have the 1240/1255 put spread for August @ $1.00 and with the SPX at 1226, you are considering rolling up for more space. Look at the cost of doing so and what happens.
Pros:
a. You chose strikes which are deep deep OTM which makes the likihood of those strikes being in the money extremely small and this puts the odds of success on the position strongly in your favor. Foregoing greed to earn a small return with high expectancy of keeping that premium (as opposed to using higher stirkes for more reward but less chance of success) is thinking like a risk manager.
b. The return is about 4.6% for just over a month which is pretty good.
These are just quick off the cuff pros and cons and I made the cons longer because it is important to always see the cons and risk first to put yourself in the mindframe of a risk manager.
2. Support and resistance come from technical analysis. Use trendlines, chart patterns, volume, moving averages, retracements, etc.. It is all about studying the price history to find the patterns and clues to guide your analysis.
Phil
You are right the questions require some long answers but I can give you some short one to get your thinking.
1. Pros and cons of taking this trade. Since I am a risk manager, I will list the Cons first:
Cons:
a. You are new at this. These are not easy trades although they are deceptively simple. The risk is real and it requires some mental fortitude to stay with it through the price swings. It is easier to do once you have traded for a while and have a better feel on options in general.
b. You are not comfortable with the adjustments that might be necessary. The key to this position, which has become my mantra, is that its success all comes down to risk management. The adjustments are pretty much the main approach you are going to use to limit your losses if and when necessary. Keeping the losses limited and small is how you can absorb one or two losing positions and still have a significant profit overall at the end of the year (Nickles and Dimes a Thousand Times is still profitable even if once a yea you give a quarter back). So my advice is to think about the adjustments. Pretend you have the 1240/1255 put spread for August @ $1.00 and with the SPX at 1226, you are considering rolling up for more space. Look at the cost of doing so and what happens.
Pros:
a. You chose strikes which are deep deep OTM which makes the likihood of those strikes being in the money extremely small and this puts the odds of success on the position strongly in your favor. Foregoing greed to earn a small return with high expectancy of keeping that premium (as opposed to using higher stirkes for more reward but less chance of success) is thinking like a risk manager.
b. The return is about 4.6% for just over a month which is pretty good.
These are just quick off the cuff pros and cons and I made the cons longer because it is important to always see the cons and risk first to put yourself in the mindframe of a risk manager.
2. Support and resistance come from technical analysis. Use trendlines, chart patterns, volume, moving averages, retracements, etc.. It is all about studying the price history to find the patterns and clues to guide your analysis.
Phil
Phil,
There are other (I know at least 3) entities who trade by selling deep OTM spreads for around 5% return/month -- very similar to what is working so well for you. Yet they publish their annual returns as being in the 20% to 25% range. I would have expected 40% to 50%. I'm struggling to see where the reduction is coming from. Are the loss months larger than I thought? Are they trading only a few months out of the year (like when the market is not trending)...??
There are other (I know at least 3) entities who trade by selling deep OTM spreads for around 5% return/month -- very similar to what is working so well for you. Yet they publish their annual returns as being in the 20% to 25% range. I would have expected 40% to 50%. I'm struggling to see where the reduction is coming from. Are the loss months larger than I thought? Are they trading only a few months out of the year (like when the market is not trending)...??