SPX Credit Spread Trader

Did anybody notice the CBOE is launching new Mini-SPX options? This is getting very confusing, because they just launched weekly's too. I'm trying to figure out why they are launching these since there is already the SPY. Coach, do you think these are worth looking at?

http://www.cboe.com/micro/xsp/introduction.aspx
The Chicago Board Options Exchange (CBOE) announced that it will offer a new options contract, Mini-SPX options, based on the Standard & Poor's 500 Stock Index, beginning October 25, 2005.

Key features of the proposed Mini-SPX options include the following:

The ticker symbol for Mini-SPX options is XSP.


Mini-SPX options have 1/10th the value of the S&P 500® (SPX) Index options (e.g. if the S&P 500 Index is at 1235.00, the Mini-SPX would have a value of 123.50, and notional value covered by the Mini-SPX options (with a $100 multiplier) would be $12,350).
 
The only thing that comes to mind is that the SPY is an ETF which CBOE lists options on and the SPY is not a product of the CBOE. So the CBOE created the mini-SPX to compete with the SPY for those who want to trade the SPX in smaller increments and still have the cash-settled European style benefits. Honestly, and I am just talking off the top of my head, it is the CBOE trying to build its empire since it already has a monopoly on SPX.

They may be nicer to use to hedge perhaps since their value will be exactly that of the SPX/10 as opposed to SPY which is an ETF which tracks the S&P. Now the XSP will mirror it at 1/1oth the value.

Also this may mean something:

Mini-SPX options will trade on CBOE's Hybrid 2.0 Trading System, which includes Remote Market Makers. Trading XSP options on CBOE's Hybrid Trading System will offer investors a smaller-sized S&P 500 contract with the combined advantages of electronic trading and the open-outcry market on a single platform.


Perhaps the XSP will have better spreads than the SPX and SPY, just have to sell 10x as many lol.


Phil

Quote from skdoyle1:

Did anybody notice the CBOE is launching new Mini-SPX options? This is getting very confusing, because they just launched weekly's too. I'm trying to figure out why they are launching these since there is already the SPY. Coach, do you think these are worth looking at?

http://www.cboe.com/micro/xsp/introduction.aspx
The Chicago Board Options Exchange (CBOE) announced that it will offer a new options contract, Mini-SPX options, based on the Standard & Poor's 500 Stock Index, beginning October 25, 2005.

Key features of the proposed Mini-SPX options include the following:

The ticker symbol for Mini-SPX options is XSP.


Mini-SPX options have 1/10th the value of the S&P 500® (SPX) Index options (e.g. if the S&P 500 Index is at 1235.00, the Mini-SPX would have a value of 123.50, and notional value covered by the Mini-SPX options (with a $100 multiplier) would be $12,350).
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I think you're exactly right. The CBOE is just trying to compete and gain back some lost market share.

The listing this of XSP will interesting in terms of observing the b/a spread that the CBOE trys to keep as this will be exclusively listed like the SPX. If they make a .05/.10 market then this product just may be a sucess. We'll see.

The death knell to exclusively listed products will be quotes in pennys....which is well on it's way.





Quote from optioncoach:

The only thing that comes to mind is that the SPY is an ETF which CBOE lists options on and the SPY is not a product of the CBOE. So the CBOE created the mini-SPX to compete with the SPY for those who want to trade the SPX in smaller increments and still have the cash-settled European style benefits. Honestly, and I am just talking off the top of my head, it is the CBOE trying to build its empire since it already has a monopoly on SPX.

They may be nicer to use to hedge perhaps since their value will be exactly that of the SPX/10 as opposed to SPY which is an ETF which tracks the S&P. Now the XSP will mirror it at 1/1oth the value.

Phil
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With October expiration approaching soon, I doubt you can get a decent credit at 1140/1155. Also, I would not close out, or I try not to, unless I get at least 50% of the credit as profit and only if there is still enough time to enter into another good spread. Premiums are drying up on the put side so maybe better to let decay do its work. Not sure if a major dip is coming or not but you are still far enough out.

Phil

Quote from andysmith:

Phil,

Appreciate your thoughts on this: I sold SPX 1160/1170 put spreads a few days ago for 0.90. I think I can unload them for 0.55 today. If I can do that, I can then wait for a major dip and grab some 1140/1150 put spreads.

What do you think of this approach (instead of sitting tight and holding to near expiration)?

EDIT -- I doubt I'd be able to buy back at 0.55, so the question is academic now, but I'm still very curious to know your thoughts on this.
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It might be quite interesting to make up some credit spread combinations using SPX and XSPs somehow. I will have to see them trading first to see the pricing. I wonder if I could do my usual deep OTM Iron Condor and buy some cheap ATM straddles on XSP for swing trading, or perhaps some long XSP strangles for swing trading... hmmmm must go to the lab.

Phil


Quote from Dr. Zhivodka:

I think you're exactly right. The CBOE is just trying to compete and gain back some lost market share.

The listing this of XSP will interesting in terms of observing the b/a spread that the CBOE trys to keep as this will be exclusively listed like the SPX. If they make a .05/.10 market then this product just may be a sucess. We'll see.
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Quote from optioncoach:

I had an account with IB up until recently and I always had problems logging in. I would re-boot and reload to clear out any errors but many times I just could not trade. I have IB on two different computers and it only takes a few times to make me nervous about trusting my money there. I also read many comments here at ET from people who had problems with logging in or getting into the platform.

Moreover, the set-up is more of a pain to trade. In OX or ToS I can immediately see the entire chain and scan for prmeium and spreads. WIth IB I have to open the entire listing and select which strikes I want and it never fits the entire chain in the window. I can also switch between chains pretty quickly. Even better in ToS I can call up all vertical spreads at once instead of picking the specific spreads I think I might want to see in IB.

So bottom line, I do not trust IB for its connections or on my computer and I find ToS and OX so much easier to navigate and use. With OX and ToS I pay $1.25 a contract v. $1.00 at IB so for the extra $0.25 savings I found IB was not worth it, even for the options on futures.

Now many people have had great experiences with IB and I still recommend them to people as one of the lowest brokers out there for them to look into, but they have done more than enough to shake my confidence and that is all it takes for me to stay away. I almost went back but when ToS added E-minis futures I decided to put some money there for my futures day trading.

Phil
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Phil:

I had similar experiences getting set up with IB. Then, after all the effort (no quotes on base platform)....I can't trade SPU options!! They do not (at least did not last year) offer options on the large SP 500.
 
If I remember correctly when I asked about the same thing, they told me that IB only carries what is electronically traded and E-minis are on Globex(?-electronic) but the regular S&P future is not so they do not allow that product.

Phil

Quote from craigatelite:

Phil:

I had similar experiences getting set up with IB. Then, after all the effort (no quotes on base platform)....I can't trade SPU options!! They do not (at least did not last year) offer options on the large SP 500.
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Yes, I should have mentioned that I'm talking about deep OTM spreads here. So for November I'm looking at the 1285/1300 or even the 1290/1300 bear call spread.

I guess what I've noticed is that once margin frees up after opex week, the credits on the deep OTM spreads for the next month are relatively poor esp. for bear call spreads (bull put seem to be better). So I'm thinking that I'll put the subsequent month bear call spreads on about two weeks before the current month expires (ie. 6 or 7 weeks prior to subsequent month expiration) and the bull put spreads on when my margin frees up. That way I should get a higher premium for the bear call (all things being equal, i.e. the market doesn't move up a lot) and my additional risk is only on the upside (i.e. no additional risk from a terrorist or catastrophic event). I've actually been doing this for the last couple of months and one thing I've noticed is that the b/a spread is narrower and I almost always get filled at a price I felt was fair (i.e. I generally do not have to give a nickel or a dime, but, of course, that's relative). And, of course, this all depends on where I think the market is headed plus I use TA to assist with determining support and resistance.

I believe Coach says he starts looking at subsequent month spreads about 6 weeks in advance of opex week. Correct me if I'm wrong Coach, but I believe that last month was unusual for you in that you had used up all your allocated margin for credit spreads on Sept positions and therefore had to wait until expiration to put on October positions. Otherwise you would have put on some October positions prior to Sept. expiration.

Quote from ryank:

The tradeoff you are making is more credit for more risk vs smaller credit for less risk. If you are going to increase your margin by going out to next month, have you looked at selling more contracts in October? This would increase your credit and increase your margin while keeping the time frame short. I guess it would all depend on what strikes and what credit you are looking at and are comfortable with. Just a thought.

ryan
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This is exactly what a friend of mine does, he put's on the bear call about 6-8 weeks early. He always get's a much higher credit than I do putting on the spreads the monday after expiration. I tried to argue the point that time decay occurs at a much quicker rate the closer we get to expiration and therefore it would make sense to wait, but he has proven me wrong for the last 3 months in a row. Where I get a .50 credit, he is bring in about 1.25-1.50 credit, and only taking on the risk of 2-4 weeks extra on a upside break out. I'm no master of the greeks, but it doesn't really make sense to me.

Regardless, this is what I'm going to do as well on the bear calls.

Shawn
"Nickles and dimes....well you know the rest..."


Quote from rdemyan:

Yes, I should have mentioned that I'm talking about deep OTM spreads here. So for November I'm looking at the 1285/1300 or even the 1290/1300 bear call spread.

I guess what I've noticed is that once margin frees up after opex week, the credits on the deep OTM spreads for the next month are relatively poor esp. for bear call spreads (bull put seem to be better). So I'm thinking that I'll put the subsequent month bear call spreads on about two weeks before the current month expires (ie. 6 or 7 weeks prior to subsequent month expiration) and the bull put spreads on when my margin frees up. That way I should get a higher premium for the bear call (all things being equal, i.e. the market doesn't move up a lot) and my additional risk is only on the upside (i.e. no additional risk from a terrorist or catastrophic event). I've actually been doing this for the last couple of months and one thing I've noticed is that the b/a spread is narrower and I almost always get filled at a price I felt was fair (i.e. I generally do not have to give a nickel or a dime, but, of course, that's relative). And, of course, this all depends on where I think the market is headed plus I use TA to assist with determining support and resistance.

I believe Coach says he starts looking at subsequent month spreads about 6 weeks in advance of opex week. Correct me if I'm wrong Coach, but I believe that last month was unusual for you in that you had used up all your allocated margin for credit spreads on Sept positions and therefore had to wait until expiration to put on October positions. Otherwise you would have put on some October positions prior to Sept. expiration.
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Quote from skdoyle1:

This is exactly what a friend of mine does, he put's on the bear call about 6-8 weeks early. He always get's a much higher credit than I do putting on the spreads the monday after expiration. I tried to argue the point that time decay occurs at a much quicker rate the closer we get to expiration and therefore it would make sense to wait, but he has proven me wrong for the last 3 months in a row. Where I get a .50 credit, he is bring in about 1.25-1.50 credit, and only taking on the risk of 2-4 weeks extra on a upside break out. I'm no master of the greeks, but it doesn't really make sense to me.

Regardless, this is what I'm going to do as well on the bear calls.

Shawn
"Nickles and dimes....well you know the rest..."
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I totally agree with you. I have been thinking about doing the same thing for past few days. But I haven't seen any good premiums for those strikes (e.g. 1280-1300)
 
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