SPX Credit Spread Trader

Sorry for the confusion. Many times when people refer to a number of butterflies, they are usually referring to the numbers in the wings which are both the same. So 30 long butterflies is usually +30/-60/+30. That is how I have heard many traders refer to them where the number they state reflects the wing number and long or short refers to whether the wings are long or short.

Phil

Quote from traderanonymous:

Optioncoach,

I really appreciate this thread & have just started following along. I have a basic qs. regarding your butterfly spread. You said you sold 30 Oct SPY 120/117/114 put butterflies @ $.45. In layman's terms, does that mean you bot 15 - 120's, sold 30 - 117's, & bot 15 - 114's puts.

Sorry for the simple qs but I just want to make sure I follow you correctly.

Thank you for clearing this up.

traderanonymous
More...
 
"Also, adding a FLY on the SPX would be messy for me to have my SPX credit put spreads and then SPX puts as part of the FLY all mixed in. I have a personal preference to keep them in separate instruments to track."

-- Phil, this is exactly what I found when trying to hedge with the same instrument as the condor itself. The position and the hedge get "munged up" together and it makes a mess. Using a different instrument to hedge leaves intact the original condor and all calculations that with go with it -- this way, hedges can be put on and taken off without disturbing the condor.
 
To really get good at this sort of thing you have to move beyond looking at a bunch of individual trades as a "set of disperate positions."

It becomes much more profitable and easier to hedge once you begin to see everything as "a portfolio" all combined with a "global greek profile."


Quote from andysmith:

"Also, adding a FLY on the SPX would be messy for me to have my SPX credit put spreads and then SPX puts as part of the FLY all mixed in. I have a personal preference to keep them in separate instruments to track."

-- Phil, this is exactly what I found when trying to hedge with the same instrument as the condor itself. The position and the hedge get "munged up" together and it makes a mess. Using a different instrument to hedge leaves intact the original condor and all calculations that with go with it -- this way, hedges can be put on and taken off without disturbing the condor.
More...
 
Thanks for making that point Dr. Vodka. The guys at tos also stress looking at the sums of your greeks of all open positions when considering a hedge. However I am not sure exactly how this is processed. Would you care to give a for instance which numbers are most important to you and action you would take to bring them into a comfortable position?

Quote from Dr. Zhivodka:

To really get good at this sort of thing you have to move beyond looking at a bunch of individual trades as a "set of disperate positions."

It becomes much more profitable and easier to hedge once you begin to see everything as "a portfolio" all combined with a "global greek profile."
More...
 
About 10 days ago I put on a SPX OCT 1190/1180 spread for 1.00 At the time the index was moving up nicely and a short strike 50 pts OTM seemed reasonable. However the index has moved down 30 pts in only 3 days and I am starting to get nervous. I can see support at about 1200 but its not major support. A devestating hit from Rita this weekend and the bottom could fall out. I have been tempted to pull the trigger on this position all day and may do so tomorrow just for peace of mind. Is anyone else out there in a like position?

I am also wondering if this great strategy of milking the SPX for premium is a better 9 mo. of the year play and maybe volitility iin the 4th quarter is just too dangerous for these spreads?
 
Well today's late surge hopefully helped you breath a little easier.
1200/1205 is the strong support area which held after Katrina and I think Rita will not have has big an impact because the people are moved out and preparations were done in advance. Some refineries may have some damage but overall, I think hysteria will settle and the market will settle. I expect a flat day on Friday unless more news from Rita comes in (change in winds, direction, etc..).

As for whether this is a 9 month or 12 month strategy, I think the strategy can be adapted to whatever the market is doing. If the market gets more volatile then certainly sticking with spreads outside major support areas and avoiding ICs is a good approach. Right now I only have puts on the SPX and XEO with a few levels of support between me and the index. I still feel overall we will be higher, and would have been had not Rita popped up. The idea is to read the market and not just place IC on each month. That is what makes this approach complex, it really requires you to stay on top of the market and various indicators.

Although my puts have jumped all over the place, 1205 still has held and will just let time decay do its job until I get a contra-indicator. The SPY partial hedge makes me feel a little bit better so if it does break through 1200 I can make some money to offset any costs of adjusting to an extent.

Should be interesting next couple of days.....

Phil


Quote from Hart9000:

About 10 days ago I put on a SPX OCT 1190/1180 spread for 1.00 At the time the index was moving up nicely and a short strike 50 pts OTM seemed reasonable. However the index has moved down 30 pts in only 3 days and I am starting to get nervous. I can see support at about 1200 but its not major support. A devestating hit from Rita this weekend and the bottom could fall out. I have been tempted to pull the trigger on this position all day and may do so tomorrow just for peace of mind. Is anyone else out there in a like position?

I am also wondering if this great strategy of milking the SPX for premium is a better 9 mo. of the year play and maybe volitility iin the 4th quarter is just too dangerous for these spreads?
More...
 
Questions to ask yourself:

1) what's your net delta/gamma at SPX 1214

2) what is it at 1200?

3) what it is at your short strike?

4) can you "solve" for your risk at these or any increment?

5) what do you sell (or buy) hedge off your risk and still try to maintain your +theta and to remain in your comfort (read: loss) zone?

You need to be able to answer these questions (at a bare minimum) quickly and correctly. No one can answer them for you because only you know your size, your risk level and your tolerance for loss. Otherwise this strategy is a quick way to the poor house. Not to be harsh, just facts. Too many people have the impression that you just slap these on and then sit back to collect your free money. Risk Management is not just "I'll lift my short strike when the SPX gets to xxxx.xx"

The upside is that once you can answer the simple questions above (and many more) then your are independent and on your way.

BTW: This means nothing to your trade but I think we go quite a bit higher next week. I added a bunch of +delta in the drop today. But that and $3.75 will get you a Double Mocha Frappuccinio. :)


Quote from Hart9000:

About 10 days ago I put on a SPX OCT 1190/1180 spread for 1.00 At the time the index was moving up nicely and a short strike 50 pts OTM seemed reasonable. However the index has moved down 30 pts in only 3 days and I am starting to get nervous. I can see support at about 1200 but its not major support. A devestating hit from Rita this weekend and the bottom could fall out. I have been tempted to pull the trigger on this position all day and may do so tomorrow just for peace of mind. Is anyone else out there in a like position?

I am also wondering if this great strategy of milking the SPX for premium is a better 9 mo. of the year play and maybe volitility iin the 4th quarter is just too dangerous for these spreads?
More...
 
Dr. Zhivodka,

I do the risk calculation a little differently. I calculate the worst case scenario, say vol up 10%, index 10 points away from short strike, 5 days into the future. (These are all easy to set with the TOS platform.) Then I read my loss. This is the max loss I'm willing to live with and it dictates my position sizing. Comments?

As far as retail investors go, I'm not sure managing deltas are practical.... In your example, it's easy enough to read off delta/gamma at various points. The question really is, what does one DO about it?
 
Good good, whatever works for you.

I'm not sure I understand the second paragraph. You do what you need to do to. The infinite number of possibilities is only limited by the number of different option portfilios one can contruct.


Quote from andysmith:

Dr. Zhivodka,

I do the risk calculation a little differently. I calculate the worst case scenario, say vol up 10%, index 10 points away from short strike, 5 days into the future. (These are all easy to set with the TOS platform.) Then I read my loss. This is the max loss I'm willing to live with and it dictates my position sizing. Comments?

As far as retail investors go, I'm not sure managing deltas are practical.... In your example, it's easy enough to read off delta/gamma at various points. The question really is, what does one DO about it?
More...
 
I think these points about risk managements are spot on. If you spend all your time managing the risk, then the profits take care of themselves.

As for your upward movement prediction I concur for two reasons:

1. I put on the SPY put partial hedge. Everytime I put that on when I fear the market creeping past a key support/resistance level, it always moves back the other way LOL.

2. I also went long E-mini futures looking for a continued move to 1220 based on some technical factors.

Phil


Quote from Dr. Zhivodka:

Questions to ask yourself:

1) what's your net delta/gamma at SPX 1214

2) what is it at 1200?

3) what it is at your short strike?

4) can you "solve" for your risk at these or any increment?

5) what do you sell (or buy) hedge off your risk and still try to maintain your +theta and to remain in your comfort (read: loss) zone?

You need to be able to answer these questions (at a bare minimum) quickly and correctly. No one can answer them for you because only you know your size, your risk level and your tolerance for loss. Otherwise this strategy is a quick way to the poor house. Not to be harsh, just facts. Too many people have the impression that you just slap these on and then sit back to collect your free money. Risk Management is not just "I'll lift my short strike when the SPX gets to xxxx.xx"

The upside is that once you can answer the simple questions above (and many more) then your are independent and on your way.

BTW: This means nothing to your trade but I think we go quite a bit higher next week. I added a bunch of +delta in the drop today. But that and $3.75 will get you a Double Mocha Frappuccinio. :)
More...
 
You must log in or register to reply here.
Back
Top