SPX Credit Spread Trader

[Maverick74]

Quote from ssternlight:

I don't trade this strategy but I believe there are guys out there like Ansbacher, Zenith fund, etc.. who do and have done so successfully for years.

If you look on www.iasg.com you can see how the returns have varied during the months you cite...

It's also interesting to note how the AUM has moved...

Ansbacher and Zenith do not trade iron condors.

 

[JET_DRIVER]

Quote from Maverick74:

Ansbacher and Zenith do not trade iron condors.

Max just sells OTM puts with 30 dte. He as a discliplined risk control method and a respectable trackrecord. After all he has traded for over 20 years!

I trade both sides of the frontspread/backspread realm. I normally DO NOT sell naked puts. My preference is a diagonal put credit spread. I watched my mentor, JS, make many MILLIONS of dollars selling premium. I have made some adjustment to his style but basically trade his method.

 

[skanan]

Mav,

I have been trying to develop this strategy on selling ATM put credit when there is a large down move like last week. So far I have tried on spy instead of spx so I can practice small amount of contracts. I aimed for largest reward and limit my position size. Is there anything else I can do to hedge the risk or to create positive expectancy ?

-Nick

Quote from Maverick74:


How far you go out is really pointless. In fact, I would argue that you should not go far out. Take the risk and get a bigger credit. Maybe put the spread on after a large move when you think stat vol is going to calm down some.

 

[JET_DRIVER]

Quote from rjg96:

This is why I think I'm more comfortable just writing 5% OTM bear call spreads. The market tends to move up slower than it moves down; giving more time (and more liquidity) to exit a spread. What do you guys think?

You are right. The market does move up slower than it goes down. (Fear is a stronger emotion than greed). The problem is call premiums are much less than put premiums (50 otm call much less than 50 otm put). One of the major reasons for this is all of the covered write people. They flatten out the call skew. In looking back over 20 years of trading, I have had twice as many stops on the upside conpared to the downside.

 

[El OchoCinco]

Do they trade credit spreads? I am trying to remind people here that this is not an Iron Condor thread and that I only leg into them if the market seems rangebound or I can place strikes outside of support and resistance levels. I do not want people to think that you simply place Iron Condors every month. I trade the spreads and leg into the ICs if it looks worthwhile.

There are a few private funds that sell credit spreads on the SPX and I have spoken with 2 managers. They trade them differently. One manager uses strikes 50 to 100 points wide way out of the money and only uses puts selling about 1000 to 3000 contracts a month. Too big for me. Another manager focuses on puts also but adds call spreads occasionally for added premium. Naturally I am sure they left out some juicy details on their approach.

Quote from Maverick74:

Ansbacher and Zenith do not trade iron condors.

 

[rdemyan]

Yes, this is the problem. That's why I'll be interested to see if I can keep to my new strategy of selling more call spreads than put spreads (to limit catastrophic loss on the downside) when the call spread premium are relatively low. Will I be able to resist the "juicier" premiums on the put side? Either way, I also do intend to limit the percentage of my portfolio that will be allocated to credit spreads (probably 50% on call spreads and 20 to 25% on put spreads, but I'm still working that out).

Quote from JET_DRIVER:

You are right. The market does move up slower than it goes down. (Fear is a stronger emotion than greed). The problem is call premiums are much less than put premiums (50 otm call much less than 50 otm put). One of the major reasons for this is all of the covered write people. They flatten out the call skew. In looking back over 20 years of trading, I have had twice as many stops on the upside conpared to the downside.

 

[ssternlight]

Quote from optioncoach:

Do they trade credit spreads? I am trying to remind people here that this is not an Iron Condor thread and that I only leg into them if the market seems rangebound or I can place strikes outside of support and resistance levels. I do not want people to think that you simply place Iron Condors every month. I trade the spreads and leg into the ICs if it looks worthwhile.

There are a few private funds that sell credit spreads on the SPX and I have spoken with 2 managers. They trade them differently. One manager uses strikes 50 to 100 points wide way out of the money and only uses puts selling about 1000 to 3000 contracts a month. Too big for me. Another manager focuses on puts also but adds call spreads occasionally for added premium. Naturally I am sure they left out some juicy details on their approach.

Yes they do...

Just look at the Ansbacher site. I spoke with the manager of the Zenith fund and he does as well.

 

[rjg96]

Quote from JET_DRIVER:

You are right. The market does move up slower than it goes down. (Fear is a stronger emotion than greed). The problem is call premiums are much less than put premiums (50 otm call much less than 50 otm put). One of the major reasons for this is all of the covered write people. They flatten out the call skew. In looking back over 20 years of trading, I have had twice as many stops on the upside conpared to the downside.

True, but for now, I'm happier (and sleep far better), with the call spreads. I know that I get much less premium, but I like that I'm not exposed to fear. There's a lot of fear-provoking things happening and that could happen right now. So, I'd rather stay away from it.

BTW, what did you mean by your last sentence? That the market has moved up more than its moved down (in a given month)?

 

[Maverick74]

Quote from skanan:

Mav,

I have been trying to develop this strategy on selling ATM put credit when there is a large down move like last week. So far I have tried on spy instead of spx so I can practice small amount of contracts. I aimed for largest reward and limit my position size. Is there anything else I can do to hedge the risk or to create positive expectancy ?

-Nick

Sure,

Depending on the type of trader you are, if you like to swing trade the tops and bottoms, you could sell ITM credit spreads. You can often take in 7 to 8 pt credits. Yes, 7 to 8 pts, not .70 to .80, in return for only 2 to 3 pts of risk. Much better risk to reward.

Of course you are trading hard deltas and need the index to move back up. But if you are decent at picking tops and bottoms, it's a much safer way then doing what a lot of people do which is selling naked puts or getting long the underlying outright. This allows you to make a bet with very limited risk, risk that you don't need to hedge, re-hedge, and hedge again. The upside is sweet. No greeks to worry about. And the credits are huge.

Keep in mind, this is strictly a directional bet. But it allows you to not have to worry about putting out fires when the shit hits the fan.

 

[andysmith]

Choad,

Thank you for the great posts.

Actually, several professional traders I've come across have the same opinion as you about low reward/risk credit spreads. However, I have not yet found another strategy that has a high return as this one.

Quote from Choad:

To me it's all about the dollar risk/reward for THAT trade. Every trade. Every single time I put on any position.

What is my MAX loss? That is what is on my mind. To me the max theoretical loss, IS my max loss - not the loss I will get IF I can get a hedge on fast. With options, anyway. No, I don't assume every stock I trade can go to zero over night, but that happens and I do keep it in mind.

I just don't put on positions with a large negative risk/reward. Even if you can say "I theoretically will only lose 1 time out of ten...", I just don't do it. But that's just me. I always assume the worst. But I have survived trading options the last 6 years, including lots of SPX contracts.

This is JMHO, there are plenty other ways to trade and make money.

Good luck to all.

C