SPX Credit Spread Trader

Seems like a very reasonable approach. If you have enough time to expiration, you might even go much further out and sacrifice some premium for more safety. For example, on the last dip in the market I grabbed the 1140/1155 put spread for September which is quite far below several support points because I do not mind giving up some premium to increase my chances of keeping the premium.

Phil

Quote from andysmith:

Phil,

I'm trying the following approach in selecting my short strikes:

1) Locate where strong support and resistance lies

2) Add 10 to the resistance, subtract 10 from the support -- these are the points at which I will take action (adjustment,...)

3) Add 15 to the higher adjustment point, subtract 15 from the lower adjustment point -- these are my short strikes.

Whaddya think?
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"For example, on the last dip in the market I grabbed the 1140/1155 put spread for September..."
-- I always debate about waiting for dips because 1) they may not happen as anticipated 2) while waiting for them to happen my $ is sitting idle, 3) if the dip happens a week from now, that's a week of theta decay wasted. How do you think about these Phil?
 
The 1140/1155 spread I added on a dip was not an initial position, it was an additional spread. I alreayd opened the 1165/1175 put spread before. When the market makes a major dip as it did that week, I look to jump in. I do not necessarily sit and wiat for dips, I merely take advantage of them when they occur.

If no large price swing occurs I do not place those additional trades. This is referring to those little scalp positions I put on. As for your general positions, you do not really have to wait for a nice dip day. Simply locate the strikes you want and the premium and place the order. My only caveat is to place a put spread on a down day and a call spread on an up day to help you get the best poremium possible. Either can be done on a relatively flat day. But if there are 45 days to expiration, waiting a a few days for an entry is not a big deal. If it is 30, it may be better to simply open the spreads with the strikes and premiums you feel comfortable with.

Remember, this is no exact science so you cannot write it down to the exact robotic rules. Experience is what guides you in when to make trades so give it time to get more comfortable. For now just focus on your strike and premium selection and days to expiraiton.

phil

Quote from andysmith:

"For example, on the last dip in the market I grabbed the 1140/1155 put spread for September..."
-- I always debate about waiting for dips because 1) they may not happen as anticipated 2) while waiting for them to happen my $ is sitting idle, 3) if the dip happens a week from now, that's a week of theta decay wasted. How do you think about these Phil?
More...
 
Quote from optioncoach:

As always have an idea of what you would do should the water come rushing into your front yard.

Phil [/B]
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I've got a bucket next to my computer in case I need to start bailing ;-)

ryan
 
Phil,

It seems the market is back to a trading range yet again. Do you think this is a good enviornment to look at IC's again to get extra credits?

Jeff.
 
Well today it is certainly testing the long-term support levels so continued downward pressure and a down day tomorrow could mean a change in the trend. As I have indicated here, I am mainly in puts positions right now due to some upward bias.

However, I am looking at added some call spreads to snatch some additional premium deep OTM. With Iron Condors I can grab this extra premium without adding to my margin requirements so basically I will just be improving my returns.

I am looking at the 1270/1285 calls at around $0.40 or so but after the last hour or so I do not think I can grab that with the increasing downday. The amount of credit is not as important since I will simply be adding to my existing put credits.

So legging into ICs in this market certainly is viable, perhaps better than opening the IC at one time. As vol returns to the market after Labor Day it might present more opportunities to leg in.

Either my focus from here on out will most likely be to enter the put spreads first and add calls spreads, if I wish, when I can grab nice credits deep OTM.

Right now I have all my margin locked up in these two put spread positions so the only new actions I can do right now is add call spreads for increased income and returns when I can.

WHen margin is cleared up I will be looking to start with the puts again most likely.

Phil



Quote from zman7854:

Phil,

It seems the market is back to a trading range yet again. Do you think this is a good enviornment to look at IC's again to get extra credits?

Jeff.
More...
 
At the beginning of this year, the S&P opened at around 1215.

Today the market is trading at around 1215.

Interesting discussion I heard recently about how the market goes no where. THis year certainly is holding up to that. After all, the indexes are constantly changed with losers getting kicked out and winners getting put in (think about why GOOG will most likely get put in the S&P500 and what crappy company will be booted). Did you know that there is only 1 company in the DOW that was there when the index was started? Indexes are put out by companies as a product to sell and only winners sell so losers are weeded out.

This is one reason why I have morphed my trading into the strategies you see here. In addition to the fact that indexes are less volatile than many individual stocks for analyzing and the SPX has nice skews, in most cases the market goes no where allowing you to collect premium along the way.

As long as your risk management plans are excellent to deal with those wild price swings, you can stay positive and keep collecting premium. Most people overlook that the what makes this or any other strategy successful is risk managment.

Just thought I would pass on some... well... thoughts

Phil
 
Coach,

So you are saying that what the chart is saying is more important than an expectation that past patterns may repeat?

You have indicated that you will continue this method of selling premium on SPX as long as it is working for you. Since it is a strategy that seems to work well in up or down trends, and even better in a stagnent market (sell IC's), could you give us an idea of what could happen in the markets to make you abandon this strategy?
 
"Most people overlook that what makes this or any other strategy successful is risk managment."

-- completely agree. I still think there is a creative, beneficial way to hedge with options on SPX futures (ES or SP). I'm sorry you have decided not to pursue that.
 
Hart:

As to the first comment, chart price history is based on expectations that past patterns may repeat. That is what support and trendlines show us in a sense. So what the chart is saying is in line with expectations of past patterns and what they can tell us about future movements. I do not look at technical analysis as a crystal ball, only as an analytical tool to help me make trade and risk management decisions.

The only thing I can think of to make me adandon this style of trading would be a fundamental change in the SPX such that the IV skews disappear and the premiums become non-existent out of the money. Other than a plate-shifting, earth changing event, I do not see myself abandoning this strategy anytime soon, since I can simply adapt it to the changing markets.

The only changes I will make is to become more sophisticated, such as using options on futures for more positions/hedging and adding in e-mini trading for intra-day swings- which is what I am testing now.

Phil
 
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