SPX Credit Spread Trader

Coach,

I know that you posted that your collateral is now fully deployed;
but if you had free collateral would you be a sell er of SPX put spreads with the SPX behaving as it has the last several days. The premiums on spreads deep (depending on your opinion of what deep now is) out of the money still seems pretty reasonable to me (for this expiration month). Or, regardless of the premium size, would you leave things alone for the moment.

Cody
 
I just had a good laugh at my own screw-up. Replace IV with Delta in my previous post. That's what I get for trying to dash off a quick post before leaving work!


Quote from ryank:

I just did some quick aftermarket digging and found these:

1245 IV .13
1250 IV .10
1255 IV .07
1260 IV .05

These strikes appear to have some juicy premiums (assuming you could get filled near the mid-point) vs. the risk:

1245/1255 = .95
1250/1260 = .70
1255/1265 = .45
1260/1270 = .30

I am using IV as a rough approximation for probability of the option finishing in the money.

ryan
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I certainly would not mind grabbing more put spreads and yesterday was frustrating not being able to add more put spreads. If I could get 1150/1165 spreads I would if I can get at least 2% net return. Today's small upday was nice to know that 1200 is not gonna be tested so fast lol. But it is the next level of suport unless we jump back above 1215-ish.

I do not see a major negative move so if I can go about 45 points OTM for decent premium I would still take it. My opinion for my own trading, not a recommendation for you or anyone else.

Phil


Quote from codyhopkins:

Coach,

I know that you posted that your collateral is now fully deployed;
but if you had free collateral would you be a sell er of SPX put spreads with the SPX behaving as it has the last several days. The premiums on spreads deep (depending on your opinion of what deep now is) out of the money still seems pretty reasonable to me (for this expiration month). Or, regardless of the premium size, would you leave things alone for the moment.

Cody
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Hi Coach,

Your insights have helped me make very good profits the last three months. Thank you!

1) After studying your excellent book, I see the adjustments for credit spreads (or naked options) are limited. What do you think about "doubling down" as the underlying approaches the short leg. In other words, buy back the spread in jeopardy and enter twice as many contracts on a further OTM spread? This would help minimize the loss and, probably, have a good chance of ending up OTM.

2) You are testing e-mini's right now according to your posts. Would you be willing to initiate a similar thread to discuss profiting on intra-day SPX swings? You are one of the few thread-leaders that is worth a darn!!!

Thanks Phil,

modegolf
 
Modegolf:

As for your profits, I will mail you an address to send me my cut LOL. I am glad you are making money. As we get out of the sideways summer, just remember to not get greedy and go for higher returns and move out of the risk management plan you have. It is so tempting but try and resist. Market is teasing a run to 1200 so we all must stya on our toes for put positions.

1). Adjustments for credit spreads were indeed limited due to their more complex nature and the fact that we addressed their risk by advising readers to simply have an exit strategy when to cut losses and get out as opposed to trying to play around with credit spreads and naked options. Most adjustments we covered in the book would not work well with credit spread and simply eat into the premiums causing a loss. We made a risk management decision to address the most staightforward type of risk management which is to get out if the position moves against you before you are forced to swallow the maximum or a significant loss. Since it was a more advanced type of subject we felt best to not address it in detail for fear of leading lesser experienced traders down a bad path. As you can see from my thread, there are some adjustments to make and they are basically roll down or get out, not too many choices. What makes it work is the decision WHEN to do these and I hope I have conveyed here how I handle it and why that will help reduce the pain of any losses and allow those winners to run.

Doubling up is something that can be quite risky and I would not recommend it unless you were an experienced trader and you have deep pockets to abosrb potnetial losses until expiration to stay ahead of the index moves. It is viable since you can potentially outrun the index until expiraiton or a reversal/pause hits. I do this in a different manner. If I have a loss and the index is expected (my expecation) to keep on runing lower, I may simply close the put spreads and get out of the way of the steam train. Then in the NEXT month I may do MORE spreads OTM to bring in more premium to recover the loss and make money. THis is like doubling up excpet I get out of the way and cut my losses and then in the next month I add mroe contracts. This way I am safe for the moment and can enter in again later when the move has subsided.

2) I will let you know how the e-mini intra-day trades go. Paper trading is great for testing but now I need to put real money on the line to test it under real conditions. Will update down the road. Since these are real live trades that may last 5 minutes to 30 minutes I may not be able to post right away in real time. But we will see....

Phil


Quote from modegolf:

Hi Coach,

Your insights have helped me make very good profits the last three months. Thank you!

1) After studying your excellent book, I see the adjustments for credit spreads (or naked options) are limited. What do you think about "doubling down" as the underlying approaches the short leg. In other words, buy back the spread in jeopardy and enter twice as many contracts on a further OTM spread? This would help minimize the loss and, probably, have a good chance of ending up OTM.

2) You are testing e-mini's right now according to your posts. Would you be willing to initiate a similar thread to discuss profiting on intra-day SPX swings? You are one of the few thread-leaders that is worth a darn!!!

Thanks Phil,

modegolf
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With the SPX down today, I executed the following bull put credit spread:

SPX Sept 1115/1130 spread for a credit of $0.50

With about 3 weeks to expiration and the long strike about 75 points OTM, it seems like this is a reasonably safe trade with a reasonable credit.

Would you agree, Coach?
 
STOP TEASING ME, you know I have no available margin to do more trades :(

Yeah I would have grabbed those strikes. Were you really able to get $0.50???? That is good. 3.33% return with a high probability of making it. Even a huge price drop would not get us to 1130 in 3 weeks IMHO.

Good job.

Phil

P.S. I will include my bank and wiring instructions for my cut of all profits LOL.

Quote from rdemyan:

With the SPX down today, I executed the following bull put credit spread:

SPX Sept 1115/1130 spread for a credit of $0.50

With about 3 weeks to expiration and the long strike about 75 points OTM, it seems like this is a reasonably safe trade with a reasonable credit.

Would you agree, Coach?
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Actually, at the time I felt that $0.50 was what I should get, but I've tried to replicate the trade since and the best seems to be $0.35 to $0.40 for a similar drop in the SPX.

I've complained many times that OX doesn't seem to be able to get me good fills, but I must say I got lucky this time.
 
That is a very good credit especially at those strikes this late in the cycle, nice! I just sold the SPX 1155/45 Put spread for $.50 I had a limit order of $.40 but the SPX dipped to 1214 and I got filled at the higher credit (always nice when that happens).
 
So you did not get a $0.50 fill then. Only thing that matters is the actual fill you get, now what you think. remember you are splitting the b/a spread and OptionsXpress cannot make a market maker take a price between the b/a if the MM does not want to so I cannot blame OX for that since they simply transmit the order.

Right now I am showing a b/a of $0.00/$0.75 for the 1115/1130 and $0.50 is out of the question. No way you get that fill. Even $0.30 would be good given those prices.

Man, you got me all excited for a spread and price that does not exist! LOL. Nice try and looking out but sorry I doubt this one will even get a $0.40 fill.

It is EXTREMELY rare to sell a spread on the + side of the midpoint between the bid/ask, almost impossible.

Phil

Quote from rdemyan:

Actually, at the time I felt that $0.50 was what I should get, but I've tried to replicate the trade since and the best seems to be $0.35 to $0.40 for a similar drop in the SPX.

I've complained many times that OX doesn't seem to be able to get me good fills, but I must say I got lucky this time.
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