SPX Credit Spread Trader

Thanks optioncoach for your kind reply.

I will have to learn how to do a combo on IB.

May I ask you something else? If you had only done a credit leg(naked put or call) how much more money you would have made.I feel this cost of protection takes away such a big chunk out of the profit.
 
Quote from skanan:


I have 1130/1145 bear put spread. I saw you open 1250/1260 to have it match your other 10 points put spread.

From what I read your posts, aside from margin issue, 1250/1265 seems to be better than 1250/1260. I'd get more credit and have some room for adjustment.

I'd like to run by you to see if there is anything I miss here.

Thanks
Nick
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Do you mean 1130/1145 bull put spread? If you have a bear put spread that means you are long the spread (not short).
 
It is hard to give advice on these type of questions. I do not know the size of the order or how much margin you are using compared to your overall portfolio. In general I like the strikes for Sept and if you can get a good % return AND if you can get filled (BIG if with a current $0.00/$0.40 b/a), then it seems like a good trade.

best of luck..

Phil

Quote from pyhootie:

Coach,
After today's little surge in the SPX (1220) and increase in calls - I'm looking at 1260/1270 and trying for a fill @ .30

Looking to try and capture a little premium with just 11 markets left. What do you think?

Pyhootie
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I am gonna let this ride for now. New Orleans is still under water, oil is still high, and we have not shown we can get back above 1220 or so with strength and stay there. The cost was a small portion of my overall credits so I am willing to let it ride a little more longer to see if the market has another set-back and settles near 1200. If not, then I take my profits on the spreads and get out if I can with whatever premium still exists. It was a home run trade expecting the market to settle near 1200. It got close, but did not stay there for long and the SPYs did not budge at all really.

In hindsight, the SPY was the wrong underlying for this trade since the premiums are so weak and the strikes are 1 point apart which is really 10 points on the SP. That means the prices will not budge much until expiration gets closer. Perhaps I should have done it with the SPX strikes... live and learn.

Phil

Quote from gatorplease:

Any thoughts on the SPY Butterfly? 119/120/121 long put Do you just let these ride and adjust last week if doesn't look like going anywhere?
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Gald you are finding the jounral useful, it has helped me out as well in teh exchange of questions.

I added the 10 point call spared to match my 10-point put spread and did not have a choice to add a 15 point spread to it. My other IC is a 15 point spread. I do not feel one is better than the other and it is hard to make such a definitive statement. I choose the spreads with the strikes I am comfortable with and the return I like. Whether it is a 10 or 15 depends on margin available and how man contracts I want to sell based on the return % AND the actual premium received.

If a spread will bring in $15,000 in premium but it is only 3% return and the strikes are deep deep OTM I will grab it over a $12,000 premium that is a 7% return with strikes much closer to the current index. It may be the difference ofdoing a 15 point spread over a 10 point spread but I take many factors into consideration:

1) Strike Price
2) Premiums/Credits
3) Risk/Margin
4) Reward/% Return

After looking at different spreads under this different factors I choose the spread I like the best. So no hard and fast rules over 15 v. 10 point spread. Trade what you like best and are most comfortable with.

Phil

Quote from skanan:

Coach,

I have been reading the whole journal. When do you plan to publish a book based on this one ? When do you plan to start www.PhilsTip.com ?

I have 1130/1145 bear put spread. I saw you open 1250/1260 to have it match your other 10 points put spread.

From what I read your posts, aside from margin issue, 1250/1265 seems to be better than 1250/1260. I'd get more credit and have some room for adjustment.

I'd like to run by you to see if there is anything I miss here.

Thanks
Nick
More...
 
Phil,

I know your adjustment points are 15 away from the short strikes. Do you adjust during the trading day when the adjustment points have been breached (danger here is the index could reverse and you wasted you adjustment) or do you adjust only if the closing price has breached your adjustment points?

Thanks!
 
You are a risk manager first and an investor second. Sure naked puts and calls make more money than call and put spreads. But nothing in life is free. Greater rewards means greater risks and greater risks is how you get wiped out. You will never last long taking on greater risks when trading. Trading is about stamina and consistency, not about how many homeruns you can hit. the more you try to swing for the fences, the more you will strike out, except in trading a strike out means being WIPED out.

Naked calls and puts on the SPX have tremendous margin requirements. In the end the returns might not be as big as you think given the fact that the margin is so high and that a small adverse movement leads to a huge loss.

Spreads provide you a hedge since your loss is limited and the long options help offset some adverse movements in the index. The keep you more focused on risk management and allow you to do more posiitons then naked calls and puts which will eat up all your capital quickly in margin requirements.

There always is a strategy that brings in more reward but is always brings in more risk. I am fine with the rewards of the spreads even though they are less than outright naked options because the risk is less and they are easier for me to manage.

Phil


Quote from osho67:

Thanks optioncoach for your kind reply.

I will have to learn how to do a combo on IB.

May I ask you something else? If you had only done a credit leg(naked put or call) how much more money you would have made.I feel this cost of protection takes away such a big chunk out of the profit.
More...
 
I use the 15-point mark as a warning mark to re-assess the positions and determine whether I should adjust or not depending on my analysis of the SPX and time to expiration. As with the JULY position which got really close, I let it run evne though it was closer than 15 points due to my assessment of the resistance points in the index and the fact that I was about 3 days from expiration.

So there is no black or white response as to when to make the adjustment. Based on my experience trading these strategies and with the SPX I use that point to alert me that I need to make a decision but do not automatically adjust. With 15 points of cushion I can make my analysis calmly and with time to take in all factors and assess the situation as opposed to waiting until the market runs past my short and people start to panic.

So the answer is that it depends on my assessment of the situation at the point in time.

Phil

Quote from andysmith:

Phil,

I know your adjustment points are 15 away from the short strikes. Do you adjust during the trading day when the adjustment points have been breached (danger here is the index could reverse and you wasted you adjustment) or do you adjust only if the closing price has breached your adjustment points?

Thanks!
More...
 
Hi Coach,

I was wondering if you would share your opinion concerning the usefulness of software that helps analyze option positions. I am presently test driving one of the popular (though expensive) packages that is available.

It provides the following information:

1. All of the greeks for any option.
2. The greeks for any combination (like spreads).
3. The theoretical value of any option, or spread.
4. All of the volatility measurements you would need.
5. The statistical probability of whether the underlying (index or stock) will touch a certain strike price, and the probability of whether the underlying will end the period (month) in the money or not. (Of course this is based on statistical analysis using the statistical volatility of the underlying and the number of std deviations the strike price is from the present price.)

I know in the past you have said that you do not use any software. I'm wondering if this will be helpful to those of us who are less experienced. For example, you may be comfortable with calculating the greeks yourself, but some of us need help. Additionally, it may be useful to see how the sensitivity changes as the underlying index moves.

If you are not comfortable discussing that is okay. But, I thought you might be a good person to ask, and I thought the other thread readers might be interested as well.

Thanx

Cody
 
I believe that OptionsXpress (and probably other brokers) offer all of this for free just for having an account with them.

ryan


Quote from codyhopkins:

Hi Coach,

I was wondering if you would share your opinion concerning the usefulness of software that helps analyze option positions. I am presently test driving one of the popular (though expensive) packages that is available.

It provides the following information:

1. All of the greeks for any option.
2. The greeks for any combination (like spreads).
3. The theoretical value of any option, or spread.
4. All of the volatility measurements you would need.
5. The statistical probability of whether the underlying (index or stock) will touch a certain strike price, and the probability of whether the underlying will end the period (month) in the money or not. (Of course this is based on statistical analysis using the statistical volatility of the underlying and the number of std deviations the strike price is from the present price.)

I know in the past you have said that you do not use any software. I'm wondering if this will be helpful to those of us who are less experienced. For example, you may be comfortable with calculating the greeks yourself, but some of us need help. Additionally, it may be useful to see how the sensitivity changes as the underlying index moves.

If you are not comfortable discussing that is okay. But, I thought you might be a good person to ask, and I thought the other thread readers might be interested as well.

Thanx

Cody
More...
 
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