SPX Credit Spread Trader

[smilingsynic]

Quote from Bitstream:

Smil--can you give me an example of unacceptable level of risk?

I think 2% a month should be realistic: if you are not using size booking less than that wouldn't even pay the bills...

...especially if spreadtrading is your only strategy

Sorry--I did not answer your original question very well. 2 AM here--yawn.

Unacceptable levels of risk and acceptable levels of risk are matters of individual taste.

Personally I have a hard time dealing with any combination of positions that could easily generate a drawdown over 10%. Naturally, to get this most of the time my accounts are in cash. 2005 has been a great year in that my returns are much greater than my drawdown. In the past I had higher levels of return, but they came with higher levels of drawdown. I could live with them back then, but I cannot now, since my situation has changed (children, for the most part).

 

[El OchoCinco]

I did not tell you do go away, I said to add something to your criticism so that it is beneficial. After several times asking I figured you were not going to. So let's lose the name calling "mautre, self-proclaimed guru, etc.." Finally you added some substance after some prodding from me and others. That is all I asked you from the beginning.

And if you read the thread you will see that I never have 100% of my capital in this strategy. The highest I ever went was 60% and I have stated more than once that you should never put 100% of your money in this type of strategy. This way a drawdown will never wipe you out.

Thanks for finally adding some substance, that is all I asked you for from the beginning because criticism without substance does not provide education. I would rather you did not take a whole page of the journal for it lol, but thanks nonetheless.

Credit spreads have pros and cons just as with every strategy. The strategy is meaning less. I could put the same capital at risk with straddles, debit spreads,etc.. It is how the risk is managed that is important. After trading for about 10 years I certainly appreciate the risk, especially since it is my money on the line and I also have the family, mortgage, etc obligations we all do.

Thanks for contributing, but just remember that this thread is dedicated to SPX Credit Spreads, so pro or con, i want to keep the discussion on that topic.

Phil

Quote from smilingsynic:

I said "it is not a bad strategy."

I make valid criticisms of the strategy, and do so in a nice way, and you respond by telling me to go away.

How mature.

 

[El OchoCinco]

Positions Closed

Now that September expiration has passed I wanted to update the closings of the last open positions:

Positions:

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

-110 SEP SPX 1255/1265 Call Spread @ $0.80

-150 SEP SPX 1270/1285 Call Spread @ $0.35

All positions expired worthless.

Total Credit = $16,300
Total Risk = $335,000
Return = 4.9%

The final month total is lower from the initial loss taken on the 1250/1260 spread to adjust before expiration. OX has still not updated the P&L statement so I will provide final details on Monday. I am just estimating from the current values. Remember that I also booked some profits the first week of SEPT which are part of the mix. Moreover, I will be opening some OCT positions in the coming week and perhaps some more profits can be banked by the end of the month. As of now, the month will still have an estimated return of about 2% which I am quite happy with.


Lessons Learned from Positions:

I stuck with my risk management plan and rolled the 1250/1260 Call Spread when it got to less than 10 points close to my short strike. I also closed my OTM put spreads to lock in a profit and attemted to roll them higher to bring in more credit. However the time it took to roll up the calls and close out the puts, I got a crappy credit on the higher strike puts.

Many of you wondered why I would roll up for less credit and basically I made automatic adjustments which have served me in the past. My automatic response was to close and roll up the other side and I have done it in the past for a net increase in credits. This time I did not and was left with bad prices and never got a fill on my other half of the put spreads.

It did not bother me too much because I stuck with my automatic response which I have followed in the past and I wanted to follow my predetermined risk management plan. I still was able to adjust for a net credit but not as much as if I got the prices I wanted.

Is it better to pull the trigger and simply apply your risk management plan or re asses each step each time and look for the best alternative? Not sure what the correct answer is since both have merit. For my approach and personal style, I prefer to stick to the mechanical adjustment since it takes the emotion and pause out of my actions and lets me react immediately to a situation moving against me. Others may prefer to determine whether it is better to leave the puts or roll. In most cases you get more credit from rolling up but as you can see not always.

I have thought all weekend about this and looked back at previous adjustment times and have determined I will still make the automatic move since it allows me to simply and passionlessly to make the adjustment when needed and not hesitate. Others may disagree and as long as you can make the adjustment when needed to protect yourself, then I advocate the method that best serves you since it is your money on the line and at risk.

So September is almost in the books and I am looking out to OCT.
I will be working in some OEX spreads as well. For OCT I am looking at OCT 540/550 Put Spreads and for SPX 1170/1180 Put Spreads. Would like to stick with puts since I expect a bullish uptrend but recent technicals have me doubtful until I can see some follow through on Friday's rally.

Phil

 

[kartik_subbarao]

Quote from smilingsynic:
I trade the ES options now, since they have become much, much better to trade than they used to. They are easy to hedge, too. The spreads are much, much better. They are not perfect, but they are better than the SPX (at least the SPX I remember).

Do you know if there are any convenient places (Yahoo, optionsXpress, etc) to get quotes on ES options (including bid/ask, volume open interest, etc)? These still seem somewhat "esoteric" in nature and not directly accessible to average traders.

It's strange that optionsXpress doesn't even support paper trading on the ES options, even they apparently support them nowadays. How is one supposed to get experience with trading these options??

 

[kartik_subbarao]

Quote from optioncoach:
I will be working in some OEX spreads as well. For OCT I am looking at OCT 540/550 Put Spreads and for SPX 1170/1180 Put Spreads. Would like to stick with puts since I expect a bullish uptrend but recent technicals have me doubtful until I can see some follow through on Friday's rally.

Phil

All other things being equal, wouldn't XEO be better for credit spreads than OEX, since XEO has European expiration and can't be exercised early? Or are all other things not equal?

 

[ryank]

Sorry, I just kind of stumbled across this information and haven't found anything going the other way. Although, I'm sure if I looked at a chart from the late 90's there would be some good gaps heading upwards.

ryan

Quote from rdemyan:



Ryan:

Great link, thanks for posting it. I've been looking for this kind of data.

Is there a similar chart for gaps upwards in the SPX?

Thanks.

 

[ryank]

So the millionaire accredited investors aren't coughing up the cash fast enough for your fund Coach? If you let any of us lowly unaccredited investors in with our small amounts of cash let me know, I might throw you a bone!

Gosh I'm tired, I was up until midnight making elephant ears last night (don't ask). I need to reread some of the postings, lots of great nuggets of info in the last 24 hours or so.

ryan

Quote from optioncoach:

 

[burrben]

Coach,
I would like to start a mini-discussion on what technicals you use to determine support/resistance on the index you are "spreading". This is an area that hasn't been touched on in this fourm at all yet, and I think it deserves some attention. OX allows you to save and post up the java charts from prophet.net, so they might not be that hard to attach. Congrats all on a $$ sept!

Shawn

Quote from optioncoach:

So September is almost in the books and I am looking out to OCT.
I will be working in some OEX spreads as well. For OCT I am looking at OCT 540/550 Put Spreads and for SPX 1170/1180 Put Spreads. Would like to stick with puts since I expect a bullish uptrend but recent technicals have me doubtful until I can see some follow through on Friday's rally.

Phil [/B]

 

[El OchoCinco]

When selling credit spreads it is probably preferable to choose the European expiration version of the S&P 100 which is the XEO. Although I adjust before a short strike gets in the money, it is still better to avoid early assignment all together and use the XEO over the OEX. I just cannot get into the habit of saying XEO when referring to S&P 100.

Phil

Quote from kartik_subbarao:

All other things being equal, wouldn't XEO be better for credit spreads than OEX, since XEO has European expiration and can't be exercised early? Or are all other things not equal?

 

[El OchoCinco]

Try the Chicago Mercantile Exchange at www.cme.com

Phil

Quote from kartik_subbarao:

Do you know if there are any convenient places (Yahoo, optionsXpress, etc) to get quotes on ES options (including bid/ask, volume open interest, etc)? These still seem somewhat "esoteric" in nature and not directly accessible to average traders.

It's strange that optionsXpress doesn't even support paper trading on the ES options, even they apparently support them nowadays. How is one supposed to get experience with trading these options??