SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
I guess the answer is, it depends... on how far OTM I am and how much time to expiration is left. Since I am using strikes deep OTM I do expect at time the market to move against me and that is why I have the cushion. If the market is still 15 to 20 points away, then I really do not consider any action yet except for maybe adding a SPY partial hedge. With these credit spreads, the market will often move agaisnt you and then with you and back and forth and the importance lies in following the market to determine whether the trend has shifted so greatly as to put your short strikes in peril.
If there is a lot of time to expiration, I am more likely to sit up and notice and review different alternatives such as SPY hedges or potential rolling. However if there is a week or so, then tiem decay is on my side and I keep a closer watch on the index, support and resistance, and market moves to determine how much risk I am in. Also, with such a short time to expiration, I may have a significant profit already and simply take it off the table.
So, depending on time to expiration and the current distance of my short strike from the market, I may do nothing since the cushion is intended to absorb some adverse movements. If large moves occur early enough and my short strikes seem in danger, I may roll down the danger side and take profit on the other side and roll that down as well. Since it depends on so many factors it is hard to determine in general the response.
That is why experience bcomes so important the more you trade. You can tap into past experiences to determine whether you can simply let tiem decay do its job, or you need to act. 90% of the time, my first step is to add a SPY partial hedge.
Phil
If there is a lot of time to expiration, I am more likely to sit up and notice and review different alternatives such as SPY hedges or potential rolling. However if there is a week or so, then tiem decay is on my side and I keep a closer watch on the index, support and resistance, and market moves to determine how much risk I am in. Also, with such a short time to expiration, I may have a significant profit already and simply take it off the table.
So, depending on time to expiration and the current distance of my short strike from the market, I may do nothing since the cushion is intended to absorb some adverse movements. If large moves occur early enough and my short strikes seem in danger, I may roll down the danger side and take profit on the other side and roll that down as well. Since it depends on so many factors it is hard to determine in general the response.
That is why experience bcomes so important the more you trade. You can tap into past experiences to determine whether you can simply let tiem decay do its job, or you need to act. 90% of the time, my first step is to add a SPY partial hedge.
Phil
SPX hit support and bounced right off it and is now well positive for the day. Took profits on my AUG SPX put spread:
115 SPX AUG 1165/1180 Put Spreads @ $0.35
Closed for net credit of $0.25 or $2,875 and a return of 1.66%.
However, remember that I closed the AUG 1260/1275 Call Spread for $0.45, which was the call side of the Iron Condor. So the total credit for both legs was $0.70 for a return of 4.67%.
I only have a SEPT put position open with plenty of margin room. If the SPX gets close to 1245, previous resistance, I may consider opening a call spread but for now I have a bullish bias as can be seen in my post a few places up where I posted a chart of the SPX. Therefore, I am mainly looking to put spreads but a run to resistance might prompt me to swing trade wiht some call spreads.
Current positions now:
110 SPX SEPT 1165/1175 Put Spreads @ $0.95
Phil
115 SPX AUG 1165/1180 Put Spreads @ $0.35
Closed for net credit of $0.25 or $2,875 and a return of 1.66%.
However, remember that I closed the AUG 1260/1275 Call Spread for $0.45, which was the call side of the Iron Condor. So the total credit for both legs was $0.70 for a return of 4.67%.
I only have a SEPT put position open with plenty of margin room. If the SPX gets close to 1245, previous resistance, I may consider opening a call spread but for now I have a bullish bias as can be seen in my post a few places up where I posted a chart of the SPX. Therefore, I am mainly looking to put spreads but a run to resistance might prompt me to swing trade wiht some call spreads.
Current positions now:
110 SPX SEPT 1165/1175 Put Spreads @ $0.95
Phil
Phil,
"If the SPX gets close to 1245, previous resistance, I may consider opening a call spread"
-- do you generally wait for the index to bounce off of 1245 and head back down before you put on the credit spread? How do you avoid getting trapped in a breakout situation (where SPX hits 1245 and keeps going up)?
"If the SPX gets close to 1245, previous resistance, I may consider opening a call spread"
-- do you generally wait for the index to bounce off of 1245 and head back down before you put on the credit spread? How do you avoid getting trapped in a breakout situation (where SPX hits 1245 and keeps going up)?
I would not necessarily wait until the index bounced of 1245 because the general idea is that if the index gets close to 1245, previous resistance, it might pause before the next move. That will give me a chance to look into the deep OTM SEPT calls which will have better premiums. I would not mind a breakout situation so much because I am trying to hedge against it by using deep OTM strikes where I expect the index to NOT go, even if a breakout occurs, and short-term options so that it has less time to make it to those strikes and time decay works for me.
I do not mind if the market moves towards my strikes, I just mind if the index enters my front yard at 15 points or so away from my strikes. At that point I decided whether to stand put and save the house or move.
Phil
I do not mind if the market moves towards my strikes, I just mind if the index enters my front yard at 15 points or so away from my strikes. At that point I decided whether to stand put and save the house or move.
Phil
"I do not mind if the market moves towards my strikes, I just mind if the index enters my front yard at 15 points or so away from my strikes. At that point I decided whether to stand put and save the house or move."
-- Great analogy! In the cases where the index has meandered to 15 points from your short strike, how does the P/L look, on average? Since probably a lot of time decay has worked its magic by that time, your loss shouldn't be a huge part of the margin?
I'm not so sure that we'll see a rally to 1245 between now and SEP... I'm looking at selling some SEP 1270/1280 spreads on a rally to 1235 or so, whaddya think?
-- Great analogy! In the cases where the index has meandered to 15 points from your short strike, how does the P/L look, on average? Since probably a lot of time decay has worked its magic by that time, your loss shouldn't be a huge part of the margin?
I'm not so sure that we'll see a rally to 1245 between now and SEP... I'm looking at selling some SEP 1270/1280 spreads on a rally to 1235 or so, whaddya think?
If we get any kind of rall yin the next day or so I would like to look at similar strikes, perhaps 1280 and up but since we are in an uptrend I am more inclined to simply sell put spreads on large down days as long as current support holds. I am looking at strikes now for some SEPT put spreads.
If we do get a nice upward movement back towards 1245 I may consider some call spreads if I can go deep OTM to have a large aenough cushion to absorb any possible SEPT rally (although no big catalyst has appeared yet).
Phil
If we do get a nice upward movement back towards 1245 I may consider some call spreads if I can go deep OTM to have a large aenough cushion to absorb any possible SEPT rally (although no big catalyst has appeared yet).
Phil
Not enough to make me close it out. Got 31 days of decay to go and a lot more money to make on it 
.
Phil
.Phil