SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
"Buy a otm longer term option and sell a closer to atm near-term option (for instance, buying a Nov 120 put and selling an Oct 119 put)." -- this is a diagonal. If you do the call side too it becomes a double diagonal (or calenderized iron condor). But I thought dbl diags were negative vega???
Riskarb is right. Thanks.
I really need to get more sleep--I misspoke AGAIN (twice this afternoon). I had said "Buy a otm longer term option and sell a closer to atm near-term option" and then to illustrate I go ahead an offer a bogus, contradictory, and stupid example:" (buying a Nov 120 put and selling an Oct 119 put).
I really need to hit "preview reply" first (or just stop working already). Yeah, right, sell Oct now. Suck in all that premium from a now deep ITM put!
I'll try again: an alternative to the credit spread is to buy LONGER-TERM otm options for protection (Dec 115 on SPY, Dec 1150 on ES, or even Jans), then sell short-term (Nov 117, Nov 1170) atm for premium.
Would I necessarily do this? No. I do think that this makes more sense than the same-month "credit" spread if vega continues to rise (I don't see any low numbers on the VIX in the near term). Near-term options have little vega risk, but the Novs still have a lot of time left (esp in this crazy market). Gamma risk still exists, of course.
I would be wary about selling option premium at this point, since uncertainty about the economy (and politics) seems to have risen. But some are more comfortable selling rather than buying premium.
Is it as liquid as the same-month "credit" spread? I haven't done calendars since this summer's ultra-low VIX, but even on IB the commissions/slippage add up. Of course, the same goes with the credit spread, or any spread.
Btw, deep OTM put calendars are in my book not bad for protection.
I have been skeptical of the whole credit spread strategy (see my prior posts/heated yet friendly debate with Phil from around a month ago in which we kind of agree to disagree). But if one MUST sell premium, the diagonal is not the worst idea.
For the record, I had been selling net premium for most of the year. I sold futures to cover the puts I sold (whew). I have stopped selling premium, at least for now.
Going forward during this wild period I am gonna go further OTM and accept less credit for more safety.
I currently have the NOV 1150/1160 I sold 2 weeks ago before the floor dropped. I have 90 spreads. Once my margin is freed tomorrow I will look into rolling down at least 10 or 15 points and increase my contracts to keep a net credit. I will be more reserved for NOV given the current uncertainty. Since I have so much margin room I have more flexibility in how I adjust or handle the NOV positions.
NOV should be a good month to continue this great year. With IV higher, the spreads have slightly better premiums so I can go further OTM and still get good premium. Right now the 1120/1130 NOV strikes can be had for about $0.70 or so.
Phil
I currently have the NOV 1150/1160 I sold 2 weeks ago before the floor dropped. I have 90 spreads. Once my margin is freed tomorrow I will look into rolling down at least 10 or 15 points and increase my contracts to keep a net credit. I will be more reserved for NOV given the current uncertainty. Since I have so much margin room I have more flexibility in how I adjust or handle the NOV positions.
NOV should be a good month to continue this great year. With IV higher, the spreads have slightly better premiums so I can go further OTM and still get good premium. Right now the 1120/1130 NOV strikes can be had for about $0.70 or so.
Phil
Since IV is picking up why are you inclined to stop selling net premium. Would you simply go further out to keep the same returns but reduce the risk by being further OTM?
Phil
Phil
IV is picking up-that is precisely the reason why you might want to go light on the premium selling. Vol trends are somewhat persistent. If anything this might be the time to be long juice.
Noticed the SP ranges adn volume lately?
I think Mav touched on this before, moving strikes might not keep the same returns for you have to increase your quantity to get the same net juice and by doing so increases your risk as well. HArd to get something for nothing nowadays.
nls,
At the exact time of entry.. I believe the spread was .1/2.40, I just threw $1.30 out to tease them... and within a minute the spread jumped.... and filled the order. Five minutes later the spread was .6/3.60... it was crazy... and closed today at .4/2.3
The ten contract position which was filled was down .90 for about 10 mintues... then at the close.. with the market relatively calm the position ended up .10
I was amazed at how quickly the volatility set iin .... and then left.... just a matter of minutes.
Murray
At the exact time of entry.. I believe the spread was .1/2.40, I just threw $1.30 out to tease them... and within a minute the spread jumped.... and filled the order. Five minutes later the spread was .6/3.60... it was crazy... and closed today at .4/2.3
The ten contract position which was filled was down .90 for about 10 mintues... then at the close.. with the market relatively calm the position ended up .10
I was amazed at how quickly the volatility set iin .... and then left.... just a matter of minutes.
Murray