SPX Credit Spread Trader

[El OchoCinco]

Good question. Of course the short answer is, it depends. It depends on the capital in your account and your experience and risk tolerance. I would say that starting out you certainly should look into using as margin a small % of your total account. With IB commissions are not much of a factor but a 10-point spread is $1,000 in margin. If you have an account of $20,000 then using $5,000 max would be a good place to start. You can do both call and put spreads with the same $5,000 (same distance between strikes for Iron Condors) and therefore not put your whole portfolio at risk.

For bigger accounts, you can of course up the %. For accounts under $10,000, unless it is completely discretionary money outside of your regular investments, I would not start with more than 1-2 contracts until you felt comfortable.

This is all subjective of course and some may feel comfortable using a large percentage of their portfolio initially. I wish it was easy to devise a straight forward formula. The closes I can come is with a nice size portfolio, start with 10 - 20% at the most and work your way up as time goes on depending on how much risk you want to take on.

Phil

Quote from Mercury77:

Hi coach,


I really like this thread and I am curious with how many contracts you advise us to start this strategy if you know what you are doing off course. In other words is this strategy worth the effort to do it with 1-3 contracts if your broker is IB?

Best regards,

Maurice

 

[burrben]

My thought's as well. I just got out of the OEX bear call for a Debit of .10, and I took in a credit of .35 on that side, so I made a total profit of .25 on the bear call (minus $50 in comm) and should make the full .65 on the bull put, for a total credit of .90...not too shabby. I hate paying commissions to close out IC's but RISK MANAGEMENT is #1. Like they say, "a bird in the hand...."

I'm trying to close out the bear call on the RUT 690/700 for .10 but the bid/ask is 0x.25, so no one's takin the bait. I would caution others about trading the RUT, compared to the OEX/SPX/NDX it's a very stingy index to spread, and the MM's are notoriously slow to fill your orders. I'm giving up on the RUT after this month and moving to the NDX.

On another note, after reading through this fourm, one thing I think still needs to be addressed is the technical indicators Coach uses. I'm just a beginner when it comes to tech analysis, but I'd love some information on how your Prophet Java charts are setup with support/resistance and any moving avg's. For example how far out do you look on the charts? ; what tick interval? Any other studies? OX allows you to save a chart as well, maybe for the OCT spreads a chart could be posted of the SPX?

Thanks for all the good info, and let's keep filling our coin banks.
Shawn

Quote from optioncoach:

Shawn:

I can give you my opinion but of course you have to follow that path that best suits your own risk aversion and trading style. AS for the SPX, the puts are quite safe in my opinion with several resistance points at 1225, 1200 and just below that. The calls are safe but without as much cushion. We have strong resistance at 1245 but if it is broken, then what is likely to happen is the market will burst through and pull back. Thus in 4 days, plus the Friday morning, the chances are certainly there that it could happen but as of today it still seems unlikely. I would be a little more watchful of the index if it breaks through 1245.

Your OEX positions seems a little closer to the short strikes on the call side and may require more vigilence. The puts seem fine. I would maybe take some profit in the OEX calls if it existed or look into a roll up if the OEX inches higher. Those calls are within the warning zone and one good day could bring you ITM, while the SPX still has enough room. So perhaps an adjustment, profit taking or small loss taking is in order for the OEX calls.

As fore RUT I have been out of touch with that index since May so I will refrain from possibly giving you bad advice there.

Phil

 

[pyhootie]

Quote from pyhootie:

Trying to get a order filled on
1140/1150 Oct Put Spread 10 contracts @ .60 credit
I know I'm pushing it a little bit on the credit but we shall see.

Pyhootie

I soon as I place the order the b/a spread dropped .25 - oh well
there is always tomorrow.
Hootie

 

[El OchoCinco]

If you are having trouble getting a fill then you might also look into the 1150/1160. I think those strikes are still a good safe distant for October and you might get the better credit.

Phil

Quote from pyhootie:

Trying to get a order filled on
1140/1150 Oct Put Spread 10 contracts @ .60 credit
I know I'm pushing it a little bit on the credit but we shall see.

Pyhootie

 

[El OchoCinco]

I can certainly post a chart with some technical ideas for OCT. Let le see what I can do today.

Phil

Quote from skdoyle1:

My thought's as well. I just got out of the OEX bear call for a Debit of .10, and I took in a credit of .35 on that side, so I made a total profit of .25 on the bear call (minus $50 in comm) and should make the full .65 on the bull put, for a total credit of .90...not too shabby. I hate paying commissions to close out IC's but RISK MANAGEMENT is #1. Like they say, "a bird in the hand...."

I'm trying to close out the bear call on the RUT 690/700 for .10 but the bid/ask is 0x.25, so no one's takin the bait. I would caution others about trading the RUT, compared to the OEX/SPX/NDX it's a very stingy index to spread, and the MM's are notoriously slow to fill your orders. I'm giving up on the RUT after this month and moving to the NDX.

On another note, after reading through this fourm, one thing I think still needs to be addressed is the technical indicators Coach uses. I'm just a beginner when it comes to tech analysis, but I'd love some information on how your Prophet Java charts are setup with support/resistance and any moving avg's. For example how far out do you look on the charts? ; what tick interval? Any other studies? OX allows you to save a chart as well, maybe for the OCT spreads a chart could be posted of the SPX?

Thanks for all the good info, and let's keep filling our coin banks.
Shawn

 

[pyhootie]

Quote from optioncoach:

If you are having trouble getting a fill then you might also look into the 1150/1160. I think those strikes are still a good safe distant for October and you might get the better credit.

Phil

I was looking at the 1150/1160 - but I thought I would dangle the bait on the 1140/1150. It's like bass fishing, throw the lure out there and see if you get a strike. You have to cast a lot of times to get strike. Thanks Phil for your excellent work, training and attention you put in this. You have certainly opened my eyes to some new trading ideas.
God Bless
Hootie

 

[Mercury77]

Quote from optioncoach:

Good question. Of course the short answer is, it depends. It depends on the capital in your account and your experience and risk tolerance. I would say that starting out you certainly should look into using as margin a small % of your total account. With IB commissions are not much of a factor but a 10-point spread is $1,000 in margin. If you have an account of $20,000 then using $5,000 max would be a good place to start. You can do both call and put spreads with the same $5,000 (same distance between strikes for Iron Condors) and therefore not put your whole portfolio at risk.

For bigger accounts, you can of course up the %. For accounts under $10,000, unless it is completely discretionary money outside of your regular investments, I would not start with more than 1-2 contracts until you felt comfortable.

This is all subjective of course and some may feel comfortable using a large percentage of their portfolio initially. I wish it was easy to devise a straight forward formula. The closes I can come is with a nice size portfolio, start with 10 - 20% at the most and work your way up as time goes on depending on how much risk you want to take on.

Phil

Thanks coach!

 

[burrben]

osho67,

From reading your posts, my suggestion is that before you trade real $$$, you need to start reading up on what exactly vertical spreads are and how you can use them effectively to make real $$. Everyone needs to start somewhere, but the worst way to start trading is without a core understanding of what you are actually trying to accomplish. There are a ton of great educational tools provided by the options institute. Here are some great web sites that will help you along:

The OptionClub SPX Iron Condor Chat
http://www.theoptionclub.com/Articles/spx-iron-condor.html

Vertical Spread Tutorial
http://www.cboe.com/LearnCenter/Tutorials.aspx

Education Webcasts
http://www.cboe.com/LearnCenter/webcast/archive.aspx
Trading Vertical Spreads
Credit Spreads and the Iron Condor--an OIC Presentation
The A-B-C's of Index Options

Online Free Courses:
http://www.1888options.com/university/classes/class_descriptions.jsp#

Also, setup a account with OptionsXpress and you'll have full access to their site. I don't believe they require you to fund the account for some time. They allow you to paper trade spreads so you can explore trading through this vehicle. The most critical part about spread trading is Risk Management and how to adjust or close when the trade goes against you. But to manage your Risk effectively, you must understand *what* you are risking.

Good luck, and trade smart!
Shawn

Quote from osho67:

Thanks optioncoach for the explanation. Little knowledge is not good. Thanks it is only one contract.

I assumed that only one spread call or put can go wrong so the margin would be the higher of the two.

Next time I hope I will do the right thing. Thanks

 

[osho67]

Thanks Skdoyle1 for the great links you have given in your post I will be reading them and be more educated.

I am happy to say all of you are very helpful on this thread.

 

[El OchoCinco]

What a beautiful day in the market lol. There is just too much headwinds in this market to push higher right now. Good day to look at OCT put spreads tomorrow if we have a flat or down day.
In the home stretch for expiration!

Phil