SPX Credit Spread Trader

Coach:

I read your adjustment with great interest. In July I attempted something similar as a result of the July 7th bombing. As in your case, with only about a week left, I could only roll up 5 points and still have a net credit on the position.

At that time, the SPX kept going up and I had to eventually get out with a loss (there was no more room to roll up and premiums on the put side were experiencing heavy decay).

Although I believe the plan you propose is sound, I'm just not so sure how well it works when there is little time left to expiration. You were only able to roll up 5 points on the SPX (as was I in July). At that time, I was forced to be glued to the screen watching and waiting and wondering if I'd have to adjust or get out. Since I have a day job this was difficult to do.

It's interesting now to follow your position because based on my experience (and the fact that I can't constantly watch my positions), I've now decided to go further OTM when I initiate positions, and if there is little time left to expiration, simply close a threatened position.

But of course, I don't have enough experience to know for sure if my new plan is better. That's why I'm glad your posting your positions in this forum.

Still, in your experience, when expiration is so close, is it maybe not better to close a position that was say 10 or 15 points away. On the other hand, from your posts you've been relying heavily on 1245 resistance.

It seems like with little time left to expiration, adjustments are difficult and not clear cut and generally offer little extra breathing room.

Thanks.
 
Quote from daytrader85:

I too am praying to the gods!! I have a Sep 125/119 Condor on SPY. I'm trying to sell 5 Oct 127/128's for 0.25 a contract.
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Success! Got .25 for my Oct 127/128 filled.

Still praying for Sep spread!!

Daytrader85
 
Now with the SPX over 10 points, the b/a is 0.1 to 1.1. I still can't get filled on the OCT SPX 1300/1310 at $0.45.

Frustrating to say the least.
 
Remember that the purpose of these adjustments is to manage my risk. I see strong resistance at 1245 and I see a market getting a little ahead of itself on no significant news. So with 4 days to expiration, and us near a resistance point, the extra 5 points of cushion gives me more room to asses the situation if we breakthrough the resistance and 10 points of cushion above that. My adjustments still have me with a NET PROFIT. I have no problem taking the calls of for a small loss. But as of right now I have a net profit which gives me more room to make adjustments if need be and will reduce any loss I need to take.

With expiration so close, the choices to roll up are limited to the next strike up, but that is why I put so much effort into choosing the strikes to begin with. By starting OUTSIDE resistance or support points I am more likely than not going to need an adjustment. Also, if an adjustment is needed, it may be just a little more breathing room since markets tend to hover over a resistance or support point.

If breaking through a resistance point, there is usually a pullback and if bouncing off there is usually a pause. So those little pauses give you a chance for more time decay and the extra 5 points given you the breathing room you might need.

As I said the goal is to manage my risk. If I can make an adjustment to give me more room and still have a profit I will do it. If the market continues to move against me, I will get out for a small loss but I took an intermediary step to salvage a profit. Although I have reduced my potential profit significantly, a profit is still a profit ;)

If you choose the strikes correctly based on support and resistance and market trends, the odds are you still might have 1, or at worst 2 losing months. But if you take appropriate action you can ensure the losses in those months are truly limited and the other months will still leave you with a nice 15 - 20% return. As long as risk is managed properly and that is the real key with this strategy. Strike selection is a major part of it but risk management is what gets you double digits ;)

Phil

Quote from rdemyan:

Coach:

I read your adjustment with great interest. In July I attempted something similar as a result of the July 7th bombing. As in your case, with only about a week left, I could only roll up 5 points and still have a net credit on the position.

At that time, the SPX kept going up and I had to eventually get out with a loss (there was no more room to roll up and premiums on the put side were experiencing heavy decay).

Although I believe the plan you propose is sound, I'm just not so sure how well it works when there is little time left to expiration. You were only able to roll up 5 points on the SPX (as was I in July). At that time, I was forced to be glued to the screen watching and waiting and wondering if I'd have to adjust or get out. Since I have a day job this was difficult to do.

It's interesting now to follow your position because based on my experience (and the fact that I can't constantly watch my positions), I've now decided to go further OTM when I initiate positions, and if there is little time left to expiration, simply close a threatened position.

But of course, I don't have enough experience to know for sure if my new plan is better. That's why I'm glad your posting your positions in this forum.

Still, in your experience, when expiration is so close, is it maybe not better to close a position that was say 10 or 15 points away. On the other hand, from your posts you've been relying heavily on 1245 resistance.

It seems like with little time left to expiration, adjustments are difficult and not clear cut and generally offer little extra breathing room.

Thanks.
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Sorry Coach, I don't get it, you paid BTC SEP SPX 1140/1155 Put Spread @ $0.25 , then STO 150 SEP SPX 1185/1200 Put Spread @ $0.15. Is this ok? Where is the edge?

TIA
ckor

Quote from optioncoach:

1. Closed my puts for profits:

BTC SEP SPX 1140/1155 Put Spread @ $0.25 NET Profit = $0.30

BTC SEP SPX 1165/1175 Put Spread @ $0.20 NET Profit =$0.75

2. Rolled up to puts at higher strike to take in credit:

STO 150 SEP SPX 1185/1200 Put Spread @ $0.15

3. Rolled up my SPX 1250/1260 Call Spread to get more room:

I decided to play it safe and roll the whole spread up to 1255/1265. I did this as a leg in because I wanted to see if I could do it better than a spread roll.

I bought back the 1250 Call and rolled to 1255 for debit of $1.20
I sold the 1260 Call and rolled to the 1265 Call for credit of $0.25

So the roll of the entire spread cost me ($0.95).


Ok 4 months of no adjustments so we finally got one for me to put the risk management plan in action lol.

Let's review what I did:

1. Closed all puts for net profits of $1.05

2. Sold more puts for net credit of $0.15 (this I intend to let expire worthless)

3. Rolled my 1250/1260 to a 1255/1265 spread for net cost of ($0.95)

Adding profits and credits to net cost leaves a TOTAL NET CREDIT of $0.35!

So making the adjustments gives me more breathing room and as of right now, still leaves me with a NET PROFIT for my actions. I still have my 1270/1285 Call Spread which I will also allow to expire worthless for a net credit of $0.30.

So overall I should end next thursday with a net credit of $0.65 as long as no further adjustments are necessary.

This is an example of the risk management approach I was talking about where I try to control my risk and still earn a profit. If the market moves higher above 1245 resistance then I reevaluate again. But I feel I can rest easy now with more breathing room.

This may be hard to follow but basically the steps are first close all puts to grab that premium. Second add more puts at higher strikes to collected even more premium. Third roll up your short call spread for more room.

Took some time today given I was spplitting b/a spreads as best as I could all over but in most cases for the sake of protecting risk, I shaved more of the middle then I normally would ;)

Let's hope the 1245 bears come in and push us back below 1240.

Phil [/B]
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Ckor:

I assume your question is why close the OTM puts with $0.25 of credit left and sell more puts for less credit? First the two positions are different so it is not a net debit, one is profit taking, one is a new position. Basically it is a risk management reaction. First, my goal is to take profits on the put side and bank them. Then I want to sell more puts to keep credit coming in. I only sold puts against one IC so I will be looking to bring in more credit with more put sales. When I am at risk on one strike, I like to bank my profits on the other side and take that money off the table. Then I like to sell more.

More often than not, the new puts offer even more credit. Here, I am dealing with puts that are pretty light due to short time to expiration and since I did not want to go over 1200. The right approach is to grab more premium but I am a little hesitant right now due to the market swings. I am currently looking at the 1195/1205 strikes for more puts and more premiums. If I can sell those puts then I am bringing in even more credit.

It is not about an edge for me, it is about banking some money quickly and entering new positions while moving my calls higher. Some may say that it may have been better to keep the puts and just roll the calls but I want to use the profits to offset the rolls and then have the freedom to re enter again.

So I can understand why you asked the question. But as I said it is about managing my risk and I found grabbing profits and banking them when I can fits my style and approaching adjustments this way keeps me profitable. I can imagine others would have played it differently, but as long as you are adhering to good risk management principles, then you are doing the right thing.

Phil


Sorry Coach, I don't get it, you paid BTC SEP SPX 1140/1155 Put Spread @ $0.25 , then STO 150 SEP SPX 1185/1200 Put Spread @ $0.15. Is this ok? Where is the edge?
 
Hi Coach,

Can you explain the put side of this transaction. You bought back both put spreads were deep out of the money. You paid 0.25 for one set, and .20 for the other. It appears that both of these sets will (although we never know until expiration) expire worthless. Hence, you would make the 0.25 and 0.20 which you paid. You then sold more puts (closer to the index) but for less tha what you paid to close the other ones 0.15.

Would you not have made more had you just let the original put spreads expire?

the call side I understand.

Cody

PS Coach you were answering while I was typing, sorry
 
Coach,

Would you put on 1255/1265 or 1260/1270 Sep bear call if you have more margin ? I asked this because we might be in situations like last time where you had margin to put on 1230/1245 when there were couple days left.

Thanks,
-Nick
 
Now I understand, thanks for the explanation.
Quote from optioncoach:

Ckor:

I assume your question is why close the OTM puts with $0.25 of credit left and sell more puts for less credit? First the two positions are different so it is not a net debit, one is profit taking, one is a new position. Basically it is a risk management reaction. First, my goal is to take profits on the put side and bank them. Then I want to sell more puts to keep credit coming in. I only sold puts against one IC so I will be looking to bring in more credit with more put sales. When I am at risk on one strike, I like to bank my profits on the other side and take that money off the table. Then I like to sell more.

More often than not, the new puts offer even more credit. Here, I am dealing with puts that are pretty light due to short time to expiration and since I did not want to go over 1200. The right approach is to grab more premium but I am a little hesitant right now due to the market swings. I am currently looking at the 1195/1205 strikes for more puts and more premiums. If I can sell those puts then I am bringing in even more credit.

It is not about an edge for me, it is about banking some money quickly and entering new positions while moving my calls higher. Some may say that it may have been better to keep the puts and just roll the calls but I want to use the profits to offset the rolls and then have the freedom to re enter again.

So I can understand why you asked the question. But as I said it is about managing my risk and I found grabbing profits and banking them when I can fits my style and approaching adjustments this way keeps me profitable. I can imagine others would have played it differently, but as long as you are adhering to good risk management principles, then you are doing the right thing.

Phil


Sorry Coach, I don't get it, you paid BTC SEP SPX 1140/1155 Put Spread @ $0.25 , then STO 150 SEP SPX 1185/1200 Put Spread @ $0.15. Is this ok? Where is the edge?
More...
 
As a new position I would only go with the 1260/1270 but I cannot imagine you would get much credit for it now with 4 trading days left to expiration.

Phil

Quote from skanan:

Coach,

Would you put on 1255/1265 or 1260/1270 Sep bear call if you have more margin ? I asked this because we might be in situations like last time where you had margin to put on 1230/1245 when there were couple days left.

Thanks,
-Nick
More...
 
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