SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Well I am still a little nervous about another move lower since the market seems so fickle. I looked at SPY and SPX and since I already had the SPY FLY I added the following SPX put spread:
Bought 10 SPX OCT 1190/1180 Put Spreads @ $3.00
Cost = $3,000
Max Reward = $7,000.
Figure if the market decides to move back to 1180 support I can make some money off it to finance a roll down of my short strikes. I did it on an upday to pay less for the puts and I do not mind giving up some of the profits to pay for it. I looked at more SPYs, SPX FLYS but with SPX the wide b/a spreads make FLYS hard to fill at good prices.
Many of you should feel quite happy because everytime I add a hedge, the market moves back the other way lol.
So with the SPY FLY, SPX bear put spread, 1190 and 1180 support areas still in tact and an up day..... so far.... I have a higher comfort level to absorb another move lower and still, and this is whst is most important, still salvage a PROFIT.
Let's see what happens with 2 weeks to expiration/settlement.
Phil
Bought 10 SPX OCT 1190/1180 Put Spreads @ $3.00
Cost = $3,000
Max Reward = $7,000.
Figure if the market decides to move back to 1180 support I can make some money off it to finance a roll down of my short strikes. I did it on an upday to pay less for the puts and I do not mind giving up some of the profits to pay for it. I looked at more SPYs, SPX FLYS but with SPX the wide b/a spreads make FLYS hard to fill at good prices.
Many of you should feel quite happy because everytime I add a hedge, the market moves back the other way lol.
So with the SPY FLY, SPX bear put spread, 1190 and 1180 support areas still in tact and an up day..... so far.... I have a higher comfort level to absorb another move lower and still, and this is whst is most important, still salvage a PROFIT.
Let's see what happens with 2 weeks to expiration/settlement.
Phil
optioncoach-
I recently joined the forum and have been reading over much of this thread. Its been very interesting to say the least. But, I still have a few questions about your strategy that I'm hoping you can answer. Hopefully, I haven't missed the answers to these questions in past posts.
-Why not focus more on deep OTM call spreads as opposed to put spreads? AS has been said many times, the market usually moves down faster than it moves up; and in this kind of market and with the kind of uncertainty we face right now (inflation, terrorism, housing bubble, etc) it seems more likely to move down further than it will go up. I guess personally, i'd "sleep easier" with call spreads. I could more easily imagine the index "gapping down" for any number of reasons, but can't imagine too many scenarios where woudl do the opposite. What are your comments on this? I do realize that the credits are juicier on the puts, but it seems the risk is also much higher.
-Why do you generally favor the SPX over SPY for writing your spreads? Is it due to the european style settlement and the greater range of available OTM strikes? Are there other reasons?
-What's the lowest percent return (relative to margin at risk) that you acccept? 2%?
Thanks!
I recently joined the forum and have been reading over much of this thread. Its been very interesting to say the least. But, I still have a few questions about your strategy that I'm hoping you can answer. Hopefully, I haven't missed the answers to these questions in past posts.
-Why not focus more on deep OTM call spreads as opposed to put spreads? AS has been said many times, the market usually moves down faster than it moves up; and in this kind of market and with the kind of uncertainty we face right now (inflation, terrorism, housing bubble, etc) it seems more likely to move down further than it will go up. I guess personally, i'd "sleep easier" with call spreads. I could more easily imagine the index "gapping down" for any number of reasons, but can't imagine too many scenarios where woudl do the opposite. What are your comments on this? I do realize that the credits are juicier on the puts, but it seems the risk is also much higher.
-Why do you generally favor the SPX over SPY for writing your spreads? Is it due to the european style settlement and the greater range of available OTM strikes? Are there other reasons?
-What's the lowest percent return (relative to margin at risk) that you acccept? 2%?
Thanks!
rdemyan,
I trade the futures mkt as well as capture premium from my iron condors regularly. So if something unexpected happens I'm able to jump in the futures mkt & trade it accordingly. So far, a majority of my success has been from my month to month premiums (iron condors) however, having the ability to trade the futures mkt is a big advantage if needed.
For instance the London bombings day was a ton of opportunity. Mkt opened up way down of which I sold puts way out of money & once mkt began to put in a bottom I went long the underlying. Also, maybe only considering using 30 - 50% max of your available margin. Also, being long puts as was previously discussed is something to seriously consider. Further, I try to always be prepared to roll, cover or make any other necessary adjustments to my positions as I see fit.
The bottom line, I try to do my best to adapt to various mkt conditions. I'm not always correct but at least being prepared ahead of time & having a gameplan gives one a huge advantage. I wish I had Coach's advice when I first started, would have helped me to reduce my learning curve dramatically & keep more of my hard earned dollars.
I watch the mkt regularly. As far as stepping away from the mkt, I definitely won't do if mkt activity increases (mkt breaks out of trading range & volatility increases). Thankfully, I'm in a position to monitor mkt activity almost anytime. If I wasn't in this position I would definitly be much more conservative in my approach to capturing month to month premiums.
Thanks again Coach for all of your help.
Take care,
traderanonymous
I trade the futures mkt as well as capture premium from my iron condors regularly. So if something unexpected happens I'm able to jump in the futures mkt & trade it accordingly. So far, a majority of my success has been from my month to month premiums (iron condors) however, having the ability to trade the futures mkt is a big advantage if needed.
For instance the London bombings day was a ton of opportunity. Mkt opened up way down of which I sold puts way out of money & once mkt began to put in a bottom I went long the underlying. Also, maybe only considering using 30 - 50% max of your available margin. Also, being long puts as was previously discussed is something to seriously consider. Further, I try to always be prepared to roll, cover or make any other necessary adjustments to my positions as I see fit.
The bottom line, I try to do my best to adapt to various mkt conditions. I'm not always correct but at least being prepared ahead of time & having a gameplan gives one a huge advantage. I wish I had Coach's advice when I first started, would have helped me to reduce my learning curve dramatically & keep more of my hard earned dollars.
I watch the mkt regularly. As far as stepping away from the mkt, I definitely won't do if mkt activity increases (mkt breaks out of trading range & volatility increases). Thankfully, I'm in a position to monitor mkt activity almost anytime. If I wasn't in this position I would definitly be much more conservative in my approach to capturing month to month premiums.
Thanks again Coach for all of your help.
Take care,
traderanonymous
Welcome to the thread! Here are some general answers:
1. I focus on BOTH OTM call and put spreads. As you can see from the journal I had a lot of call and put spreads. In Sept and Oct I was more fearful of a market surge post-Katrina and therefore was looking to enter into only deep OTM put spreads until I saw some nice upswide swings and then maybe consider some OTM call spreads for an IC if the strikes were right. So I am not only looking at put spreads. However, I do have a slight bias for put spreads because of the IV skew in SPX options. The furhter OTM you o with puts the higher the IV so I can go much further OTM to sell put spreads than I can with calls which have a reverse IV skew. So puts have a slight edge when it comes to SPX but I am happy making profits equally with puts or calls. Markets can explode lower certainly faster than they can move higher but being further OTM compensates for that risk for me. Also, in reality the market can explode higher just as easily if the right catalyst came along so either way you have to mind the risk. I try not to lock myself in to one or the other and play it the way the market seems to indicate.
2. SPX has better premiums OTM than the SPYs and I can sell less SPXs than the equivalent SPYs and still get a better credit in my opinion. European settlement is nice. I do not expect to let any short strikes ever get in the money but hey it is still nice to have the safety net against early assignment.
3. I will take at least 2% as a floor although I certainly look for much more. Perhaps a rare instance where I will take 1% if the strikes are far OTM I might go for the safer 1% over the riskier 3%.
Phil
1. I focus on BOTH OTM call and put spreads. As you can see from the journal I had a lot of call and put spreads. In Sept and Oct I was more fearful of a market surge post-Katrina and therefore was looking to enter into only deep OTM put spreads until I saw some nice upswide swings and then maybe consider some OTM call spreads for an IC if the strikes were right. So I am not only looking at put spreads. However, I do have a slight bias for put spreads because of the IV skew in SPX options. The furhter OTM you o with puts the higher the IV so I can go much further OTM to sell put spreads than I can with calls which have a reverse IV skew. So puts have a slight edge when it comes to SPX but I am happy making profits equally with puts or calls. Markets can explode lower certainly faster than they can move higher but being further OTM compensates for that risk for me. Also, in reality the market can explode higher just as easily if the right catalyst came along so either way you have to mind the risk. I try not to lock myself in to one or the other and play it the way the market seems to indicate.
2. SPX has better premiums OTM than the SPYs and I can sell less SPXs than the equivalent SPYs and still get a better credit in my opinion. European settlement is nice. I do not expect to let any short strikes ever get in the money but hey it is still nice to have the safety net against early assignment.
3. I will take at least 2% as a floor although I certainly look for much more. Perhaps a rare instance where I will take 1% if the strikes are far OTM I might go for the safer 1% over the riskier 3%.
Phil
Well I want to make it interesting for OCT so I decided to grab some call spreads to add to my puts to bring in more credit premium and more hedge for a downward movement (profit from call spreads added in to mix) and because the market looks like for the next 2 weeks it might get a little rangebound. So I am going for the SCALP lol:
STO 100 XEO OCT 565/580 Put Spreads @ $0.95
Credit = $9,500
Risk = Now I am legged into IRON CONDOR so risk is still $150,000.
Return:
Iron Condor:
100 530/545 & 565/580 IC
Credit = $0.95 + $0.65 = $1.60
Risk = $150,000
Return on Margin = 10.7%
Now the strikes are close to the current index value of 552 but looking at the market I do not believe we will have such a breakout. If so then I will simply adjust and the increased premium gives me more cushion to make the adjustment. Based on some rough calculations, 565 would also have the SPX at around 1225/1230 or so and not sure I see that happening in the next two weeks.
I also have an order for the 1240/1250 SPX spread for OCT to add to my 1165/1175 spread for an IC for more premium.
Will let you know if it is filled.
Phil
STO 100 XEO OCT 565/580 Put Spreads @ $0.95
Credit = $9,500
Risk = Now I am legged into IRON CONDOR so risk is still $150,000.
Return:
Iron Condor:
100 530/545 & 565/580 IC
Credit = $0.95 + $0.65 = $1.60
Risk = $150,000
Return on Margin = 10.7%
Now the strikes are close to the current index value of 552 but looking at the market I do not believe we will have such a breakout. If so then I will simply adjust and the increased premium gives me more cushion to make the adjustment. Based on some rough calculations, 565 would also have the SPX at around 1225/1230 or so and not sure I see that happening in the next two weeks.
I also have an order for the 1240/1250 SPX spread for OCT to add to my 1165/1175 spread for an IC for more premium.
Will let you know if it is filled.
Phil
I see what you're talking about with regard to the puts.
What do you think of writing this put spread today for October expiration:
for 1135 x 1120 for a .45 credit?
Also, in general, what do you think of trying to open spreads on Fridays or before holiday weekends-- that way you get 2+ days of "free" theta...
What do you think of writing this put spread today for October expiration:
for 1135 x 1120 for a .45 credit?
Also, in general, what do you think of trying to open spreads on Fridays or before holiday weekends-- that way you get 2+ days of "free" theta...
That is pretty nice for 2 weeks if you can get it. If the market continues to drop I seriously doubt that 1135 is a level we would be heading to.
Phil
Phil
Ok I got filled on my SPX call spreads so now I have an IC on the SPX as well:
Sold 110 SPX OCT 1240/1250 Call Spreads @ $0.30
Now the IC is:
-110 1165/1175 & 1240/1250 OCT Iron Condor
Credit = $0.30 + $0.55 = $0.85 or $9,350
Risk = $110,000
Return on Margin = 8.5%
So I have an IC on the SPX and the XEO, a SPY FLY and a SPX Bear put spread (say that 10 times fast).
In the home stretch to expiration.
Phil
Sold 110 SPX OCT 1240/1250 Call Spreads @ $0.30
Now the IC is:
-110 1165/1175 & 1240/1250 OCT Iron Condor
Credit = $0.30 + $0.55 = $0.85 or $9,350
Risk = $110,000
Return on Margin = 8.5%
So I have an IC on the SPX and the XEO, a SPY FLY and a SPX Bear put spread (say that 10 times fast).
In the home stretch to expiration.
Phil
Phil,
Many here are end-of-day traders. I do look at one-minute realtime charts using the TOS platform but it's not "second nature". You mentioned you have quite some experience with this (TICK is one thing you looked at).
Can you offer some low-hanging-fruit guidelines for assessing SPX intraday?
Many here are end-of-day traders. I do look at one-minute realtime charts using the TOS platform but it's not "second nature". You mentioned you have quite some experience with this (TICK is one thing you looked at).
Can you offer some low-hanging-fruit guidelines for assessing SPX intraday?