SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
I closed my 1230/1240 today so I can take another swipe at some premium on the call side. The market obviously has a downward bias right now so I want to roll down (1210 or 1215?) the calls to capture more premium. I rolled down my 1160/1170 puts to 1150/1160 but will that be enough for the next 8 days?
ryan
ryan
In case you were wondering why the market has pulled back higher, it is because I made further adjustments LOL. I am going to be away tomorrow and do not want to cut it close so I now adjusted the XEO position.
I had the following:
- 100 530/545 XEO OCT Put Spread @ $0.65
- 100 580/565 XEO OCT Call Spread @ $0.95
1) I closed the 580/565 Call Spread for $0.25 for a profit of $0.70
2) Opened lower strike 560/575 Call Spread for $0.50
3) Closed 530/545 Put Spread for $2.70 debit
4) Opened 525/540 Put Spread for $1.45.
I still have the XEO/OEX partial hedges in place for now and will close them if they have significant profits to lessen the cost of the adjustments.
Once expiration comes, I can net everything out and show the final results.
Phil
I had the following:
- 100 530/545 XEO OCT Put Spread @ $0.65
- 100 580/565 XEO OCT Call Spread @ $0.95
1) I closed the 580/565 Call Spread for $0.25 for a profit of $0.70
2) Opened lower strike 560/575 Call Spread for $0.50
3) Closed 530/545 Put Spread for $2.70 debit
4) Opened 525/540 Put Spread for $1.45.
I still have the XEO/OEX partial hedges in place for now and will close them if they have significant profits to lessen the cost of the adjustments.
Once expiration comes, I can net everything out and show the final results.
Phil
Was worried about the 1220 but decided to do it for the premium. 1215 just made me nervous in case of sudden burst next week and then higher SET on Friday. I just was not comfortable with 1215 although it certainly is far OTM with 5 trading days left. Did not want to get whipsawed on the topside lol.
Phil
Phil
Exactly my point. When near expiration you can realistically only roll down 5 to 10 points. Depending on the market conditions, is this enough or will you wind up continuing to roll down every day or other day another measly 5 points losing money all the way down and maintaining a consistent level of high stress.
So I wonder would it be better to just close the position and move on.
So I wonder would it be better to just close the position and move on.
This is a reverse calendar (or time) spread. This strategy works best if you feel volatility, or vega, is going down. If volatility continues going up, the strategy can be a huge loser.
In strong market moves, volatility can keep going up and up--I would therefore NOT recommend a reverse calendar. IMO, too risky, and not even a real hedge.
If you want time decay, it would make more sense to BUY the December and sell the November--a plain vanilla calendar.
The answer from me is that it depends. Right now we have just had a 50 point or drop with 5 more trading days until expiration. I am more inclined to roll down now for more space to take advantage of the short time to expiration and possible consolidation/pullback that occurs after such a move. In fact I rolled down 10 points for a bigger safety cushion.
If we had 3 weeks to expiration and the market meandered down to close to my short strikes and then started collapsing, I might be more inclined to get out of the way of the market and close the put side and simply lever up the call side to bring in more premium.
i think the more hard and fast you try and make the rules, the harder you make it to adapt to the conditions around you. With a week to go and already having a 50 point drop, I feel that the market is going to enter some short-term consolidation or have a pull back which will allow theta to work with me. 1180 is a support area and we are no below it, but just below it. We still have 2.5 hours until the end of the trading session and we could finish above it or move lower. For now I want to simply roll down for more room given the time to expiration.
I also feel that the cost of 2 adjustments is still lower than if I closed out the spread to begin with prior to the first adjustment. For example of I sell a spread for $0.55 and then have to buy it back and roll down for a net debit of $1.00 it really cost me $0.45. If I also roll down the other side and take in profits and more premium then it might actually still be for a net credit or even. If I have to adjust again, assume the net debit is again $1.00 and it ends there, then I took $1.00 loss in general which would be less than the much bigger loss simply closing the spread. I also can mitigate it with partial hedges and other side spread profits. This is hypothetical but I feel in my opinion that 1 or 2 adjusments will still reduce your risk more than simply taking the spread off initially.
Now of course I am talking about now with a week to expiration. But if time to expiration were longer I would possibly be able to roll down much more given the time value premiums and add more spreads on the other side for more premium and stay in front of the market as far as possible. I would have more choices perhaps.
So in my opinion, with short time to expiration, adjustments will result in less risk than taking the hit and closing the spread initially. Some may disagree but my experience to date has shown that adjustments can still lead to profits, and if not, they result in small limited losses. The X factor is of course if the market is exploding at you with plenty of room to run then in those situations closing out is a choice but I still lean towards adjusting down.
Phil
If we had 3 weeks to expiration and the market meandered down to close to my short strikes and then started collapsing, I might be more inclined to get out of the way of the market and close the put side and simply lever up the call side to bring in more premium.
i think the more hard and fast you try and make the rules, the harder you make it to adapt to the conditions around you. With a week to go and already having a 50 point drop, I feel that the market is going to enter some short-term consolidation or have a pull back which will allow theta to work with me. 1180 is a support area and we are no below it, but just below it. We still have 2.5 hours until the end of the trading session and we could finish above it or move lower. For now I want to simply roll down for more room given the time to expiration.
I also feel that the cost of 2 adjustments is still lower than if I closed out the spread to begin with prior to the first adjustment. For example of I sell a spread for $0.55 and then have to buy it back and roll down for a net debit of $1.00 it really cost me $0.45. If I also roll down the other side and take in profits and more premium then it might actually still be for a net credit or even. If I have to adjust again, assume the net debit is again $1.00 and it ends there, then I took $1.00 loss in general which would be less than the much bigger loss simply closing the spread. I also can mitigate it with partial hedges and other side spread profits. This is hypothetical but I feel in my opinion that 1 or 2 adjusments will still reduce your risk more than simply taking the spread off initially.
Now of course I am talking about now with a week to expiration. But if time to expiration were longer I would possibly be able to roll down much more given the time value premiums and add more spreads on the other side for more premium and stay in front of the market as far as possible. I would have more choices perhaps.
So in my opinion, with short time to expiration, adjustments will result in less risk than taking the hit and closing the spread initially. Some may disagree but my experience to date has shown that adjustments can still lead to profits, and if not, they result in small limited losses. The X factor is of course if the market is exploding at you with plenty of room to run then in those situations closing out is a choice but I still lean towards adjusting down.
Phil
In addition to what Smiling has said, I always caution people when they use words like "100% hedge" I do not think you can 100% hedge this position, otherwise it will be a risk-free position and unless you leg into sides at the exact right opportune moments, it cannot be 100% hedged.
That being said, I also am not sure that calendars of either kind are a good kind of hedge because they do not achieve the goal I set out when I add partial hedges.
To partially hedge, you want a position that could profit if the index moves against you. A calendar spread will not necessarily profit if the index moves against you. If the index is dropping and you have an OTM put calendar spread, an increase in IV in the front month could make the spread a loser and provide no hedge at all. Calendars add additional IV risk which is certainly not needed.
Admittedly I have not explored the use of calendars in great detail but just intuitively I do not feel they are the right kind of hedge for this -delta position.
Phil
That being said, I also am not sure that calendars of either kind are a good kind of hedge because they do not achieve the goal I set out when I add partial hedges.
To partially hedge, you want a position that could profit if the index moves against you. A calendar spread will not necessarily profit if the index moves against you. If the index is dropping and you have an OTM put calendar spread, an increase in IV in the front month could make the spread a loser and provide no hedge at all. Calendars add additional IV risk which is certainly not needed.
Admittedly I have not explored the use of calendars in great detail but just intuitively I do not feel they are the right kind of hedge for this -delta position.
Phil
I am starting to think we may be approaching the full capitulation after this 50+ point drop. It is what is needed before the market can move back higher if that is the next move. It is something I have heard often when the market drops and a lot of bearish sentiment is prevelant. It is sort of a contrarian approach but the point is that when the last bears finally sell, there are no longer any more sellers to drive us lower and the market pauses. That is usually when buyers start to come back in. It is a general contrarian idea and is interesting given the market moves of the past few weeks and oil/KatRita/inflation, etc..
Phil
Phil