SPX Credit Spread Trader

Coach,

I have always kept my margin capital invested in t-bills. My last broker (RF Lafferty) allowed me to use 95% of t-bill investment as margin. My new broker (TOS) allows 92% of the t-bill investment as margin. I use t-bills for 2 reasons, higher interest rate than broker normally gives, and state tax free.

Cody
 
Quote from optioncoach:

5% returns are based on my targets not on the width of my strikes. My profit goal is 5% a month. People can choose a more agressive profit target or a more conservative target. One major loss will have no affect on my portfolio because I do not have 100% of my money in this strategy and due to the way the indexes move, I can take a partial loss and get out if the market is collapsing or rocketing. With a spread I get a partial hedge. You cannot just say that it would wipe out 75% of my base, I am speaking from experience, even with losses.
Phil
More...

No, I did not say that you had 100% of your total capital in credit spread. But I HAVE seen your spreadsheets. The way you calculate your returns is you multiply the number of positions X the width of the handles. 100 positions for a 1175/1185 spread, according to your spreadsheet, is calculated as 100,000 margin (100X1000). 115 spreads for a handle of 15 equals 172,500.

You divide the credit received into the amount of margin to get your percentage. 2K of credit received, if kept, would equal, acc to your spreadsheet, 2% returns. If you use only, say, half of your available capital, then I think a more honest way to express your returns would be half of 2%, which would be 1%. Otherwise, you are using two different standards: a more generous standard if you keep the credit, and a different one in the unlikely event of losing all of your margin.

Based on the example above, a gap to 1175 or lower by exp, you would lose 100%. of your margin. That might not represent all of your capital, but such a loss would not speak highly of the supposed high returns for credit spread.

That you speak from experience (and success, so far) is irrelevant. The fact is that markets do not have a memory, and they really do not care what your past returns were. Just because you have not lost the whole wad does not mean that you won't. And just because you could properly hedge in the past because of a lack of gaps does not mean that you will so lucky in the future.

Nevertheless, I do wish you luck, and the best.
 
Wow Coach, you sure have a lot of people "excited" about your methods! For what it is worth, I have made a lot of REAL CASH using your methods. Big smile to you!

To move on...there are several indexes (OEX, NDX, XEO, SPY, etc.) that offer similar opportunities to make REAL CASH selling credit spreads. But I can't seem to get away from SPX.

What are your thoughts about how to evaluate these different underlyings? What might make you switch to or add one of these other indexes?

As always, thanks for your time. And I am really impressed with your patience with these thread intruders who are so excited to speak first and listen never.

modegolf
 
Well, I wouldn't say this discussion about risk is out of place in this thread.

True, it has been discussed at length several times, but IMHO it always needs to be remembered.

Phil obviously knows what he's doing. He has the experience and the capital backup to take a big loss.

But some newer traders should never forget that, the max risk in these spreads really is many times the monthly payoff, and one big event could take out your whole account if you over-lever.

It really is about expectation. Sure you can win $5k or whatever 10 times in row. But would anybody here say you couldn't lose $55K on the eleventh? Nobody knows what will happen in the markets.

Good luck and good trading to all.

C
 
Clearly there is risk in trading, that we all know. I made some stupid mistakes in adjusting credit spreads in the past, partly because I have frozen up during the high stress period of trying to save my positions.

But in following Coach's approach, I have learned to manage my risk and my portfolio is back on track. Coach really stresses risk management.

The biggest thing I've learned is to be a risk manager first and a profit winner second. This has changed my whole mindset. In the past I was fixated on making a certain amount a month and it caused me to take on stupid trades and lose even more money. But now I'm focused on protecting the positions I take on and I'm making money every month and sleeping much better.

Now professionals will say,"well if you made stupid mistakes that is your fault". They are right, but I submit that everyone was a beginner at one time and everyone has made stupid mistakes trading options at some point.

IMHO, Coach is an excellent teacher for beginners (even if he says his strategy isn't for beginners) and for those of us who are more advanced but not greatly experienced.







Quote from Choad:

Well, I wouldn't say this discussion about risk is out of place in this thread.

True, it has been discussed at length several times, but IMHO it always needs to be remembered.

Phil obviously knows what he's doing. He has the experience and the capital backup to take a big loss.

But some newer traders should never forget that, the max risk in these spreads really is many times the monthly payoff, and one big event could take out your whole account if you over-lever.

It really is about expectation. Sure you can win $5k or whatever 10 times in row. But would anybody here say you couldn't lose $55K on the eleventh? Nobody knows what will happen in the markets.

Good luck and good trading to all.

C
More...
 
Quote from modegolf:

Wow Coach, you sure have a lot of people "excited" about your methods! For what it is worth, I have made a lot of REAL CASH using your methods. Big smile to you!

To move on...there are several indexes (OEX, NDX, XEO, SPY, etc.) that offer similar opportunities to make REAL CASH selling credit spreads. But I can't seem to get away from SPX.

What are your thoughts about how to evaluate these different underlyings? What might make you switch to or add one of these other indexes?

As always, thanks for your time. And I am really impressed with your patience with these thread intruders who are so excited to speak first and listen never.

modegolf
More...


maybe you guys should look into ER2 or RUT or MID sometimes.
so i can hedge thru you rather than MMs (seems you guys selling them at a fair price too :D
 
Quote from modegolf:

Wow Coach, you sure have a lot of people "excited" about your methods! For what it is worth, I have made a lot of REAL CASH using your methods. Big smile to you!

To move on...there are several indexes (OEX, NDX, XEO, SPY, etc.) that offer similar opportunities to make REAL CASH selling credit spreads. But I can't seem to get away from SPX.

What are your thoughts about how to evaluate these different underlyings? What might make you switch to or add one of these other indexes?

As always, thanks for your time. And I am really impressed with your patience with these thread intruders who are so excited to speak first and listen never.

modegolf
More...


maybe you guys should look into ER2 or RUT or MID sometimes.
so i can hedge thru you rather than MMs (seems you guys selling them at a fair price too :D
 
Quote from codyhopkins:

Coach,

I have always kept my margin capital invested in t-bills. My last broker (RF Lafferty) allowed me to use 95% of t-bill investment as margin. My new broker (TOS) allows 92% of the t-bill investment as margin. I use t-bills for 2 reasons, higher interest rate than broker normally gives, and state tax free.

Cody
More...

does IB do this for you ?
 
Lot of great comments here. Risk is always the first consideration in any strategy and it should never be forgotten or overlooked. I look at my portfolio every day and the first thing I do is look at where I am taking losses or close to a losing position and see if anything needs to be done and THEN look at the profitable positions. Losing positions suck but they are inevitable and I treat them like a non-performing employee, I simply fire them.

WIth respect to margin, most brokers will allow you to margin up to 50% of your stock positions and 90% of your t-bills, with differences among brokers (i.e., the 95% at one broker mentioned above). I have about 50% of my portfolio in Closed-end Funds that pay dividends monthly and are diversified across munis, preferreds, REITs, corporate bonds, floating rate loans, convertible bonds and other fixed income instruments. Between the dividend yield and capital appreciation I can earn about 7 - 10% on that portion of the portoflio. The dividends provide steady income and small partial hedges as does the capital appreciation. I get to use about 50% of that value for spreads if I choose. The rest right now is in cash but will be rolling them into T-bills soon to earn more % and then still have access to that cash.

I think other uses of that cash while controlling the risk (i.e. don't put it all in junk bonds) allows you to earn additional yield and return while making money on the spreads and they balance each other. For example, if you make 15% on the spreads overall and earn another 4% on the other investments, you are boosting your return. If you were at 15% and took a small loss and are now down to 9%, the 4% on the other investments adds to your return and partially hedges that loss. There is no right formula on this make-up and it is left to your imagination on how to balance your portoflio in addition to the spreads. Take the securities you know best and put your money to work in a "safe" place (safe depending on how you diversify or take on additional risk lol). Nothing wrong with 100% of it in treasuries. My advice is to break it into 2 or 3 maturities so that as rates raise during the year you could roll the cash and profits into new higher rate T-bills.

Thanks to all for the thoughts and opinions as through these kind of discussions is how we learn. Trading is about bringing different opinions to one market place.

As for those asking about other underlyings than the SPX, SPX is my favorite and is the one I am most familiar with. Also with the SPYs, E-minis and options on futures, I have so many choices to play it. Other index are good as long as there is sufficient premium to go out of the money and choices of ways to play it. If it meets your criteria you can certainly do this on the Nasdaq and Russell. I just would not advise using these strategies on individual stocks.

Phil
 
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