SPX Credit Spread Trader

rdemyan · Oct 21, 2005

When you say 1265, I assume you mean the short strike?

Quote from optioncoach:

I also want to add that these positions are also somewhat direction besides focusing on volatility. I am making the non-directional bet that the market will not trade below X or trade above X by expiration. So the vol can increase and price swings can occur but I am still on my way to a profit if my price ranges are still intact. For example, the range of the SPX has increased but we are still in a certain range, although it has expanded.

That is what would lead me AWAY from IRON CONDORS as an opening position right now and I would only leg into them if conditions warranted. For now all I am looking at really are put spreads for NOV, deep OTM. But not today since it is an upday. I may look at calls once SET is finished for today but would be looking at around 1265 or so for more cushion.

Phil

El OchoCinco · Oct 21, 2005

Yes, I am referring to the short strike. People here do 5, 10 or 15-point strike spreads so I was just focusing on the strike that I was interested in for the short part of the spread.

Phil

Quote from rdemyan:

When you say 1265, I assume you mean the short strike?

rdemyan · Oct 21, 2005

There doesn't seem to be any premium around that range.

So.... what about December? I know you generally look at 45 days or less to expiration, but if I counted correctly we're at just under 8 weeks to Dec expiration (56 days). I'm thinking, for bear calls only to look at December and for bull puts to focus on November. Unfortunate part is that a Dec bear call won't match up with a Nov bull put as an IC.

Quote from optioncoach:

Yes, I am referring to the short strike. People here do 5, 10 or 15-point strike spreads so I was just focusing on the strike that I was interested in for the short part of the spread.

Phil

El OchoCinco · Oct 21, 2005

true the calls are pretty light for now. I am seeing better premium on the put side even going down to 1100. I think for now I will just focus on the deep OTM puts and leave the calls for now unless we get some strong rally in the next week or so.

Phil

Quote from rdemyan:

There doesn't seem to be any premium around that range.

So.... what about December? I know you generally look at 45 days or less to expiration, but if I counted correctly we're at just under 8 weeks to Dec expiration (56 days). I'm thinking, for bear calls only to look at December and for bull puts to focus on November. Unfortunate part is that a Dec bear call won't match up with a Nov bull put as an IC.

andysmith · Oct 21, 2005

This is nothing to do with daytrading. I am not a daytrader. My point is that if an index can jump 25 points in one day, and an iron condor is 100 points wide, do you see an issue there?

Remember, you want your condor/spread to be around 1.5 to 2 SDs OTM...

Quote from gatorplease:

You are only toast depending on time frame. These trades are not daytrades. They are designed to be held to, or close to expiration. So the increase in volatility does not mean the position will be a loss. I think many of the arguements here are between daytraders with a different perspective. This is an intermediate buy and hold position.

rdemyan · Oct 21, 2005

Andy:

How are you calculating the SD. Can you give a concrete example based on the current SPX price of about 1180.

Thanks.

Quote from andysmith:

This is nothing to do with daytrading. I am not a daytrader. My point is that if an index can jump 25 points in one day, and an iron condor is 100 points wide, do you see an issue there?

Remember, you want your condor/spread to be around 1.5 to 2 SDs OTM...

andysmith · Oct 21, 2005

Yes, I noticed there is no credit for NOV in the 1270 area. Another options may be t choose a lower strike with a much smaller position.... or just wait.

Also, you'll pay double the margin if you choose spreads in two different months.

Quote from rdemyan:

There doesn't seem to be any premium around that range.

So.... what about December? I know you generally look at 45 days or less to expiration, but if I counted correctly we're at just under 8 weeks to Dec expiration (56 days). I'm thinking, for bear calls only to look at December and for bull puts to focus on November. Unfortunate part is that a Dec bear call won't match up with a Nov bull put as an IC.

pismo10 · Oct 21, 2005

FWIW, I calculated SDs based on how many trading days left to expiration, find the average percentage move for that time period, find the SD of the data which produced that average for that time period, add and/or subtract 1,2,3,4,etc SDs from that average and apply it to the current price. All in percentage terms of course so it can be applied to the current price. I use daily data back to 1/1/1990. I also calc out the max percent move up and down for a certain number of trading days. The actual "bell" curve for the data is taller and narrower, but with fatter longer tails, than the standard bell curve so the results are inherently more conservative, except for the black swan events of course.

daytrader85 · Oct 21, 2005

Hi Coach Phil,
I finally got a hold of your book. To my surprise, I actually found it in my college (UIC) library.
I was reading the first part of the book and you said how to find which options were cheap and expensive by looking at current IV's and comparing them that particular stock or strike's IV range. Is there anyway I could get old IV's, to see what the range was, or do I just have to note it down on my own and work from that??

I hope my question makes sense. Let me know if it doesn't.

Thanks.

Daytrader85

rdemyan · Oct 21, 2005

See my prior post on 10/20/05 on page 225 where I posted a spreadsheet with the average (and mean) VIX for the past 9 to 10 years for the SPX.

Maybe you'll find this of use as apparantly know one else does.

Quote from daytrader85:

Hi Coach Phil,
I finally got a hold of your book. To my surprise, I actually found it in my college (UIC) library.
I was reading the first part of the book and you said how to find which options were cheap and expensive by looking at current IV's and comparing them that particular stock or strike's IV range. Is there anyway I could get old IV's, to see what the range was, or do I just have to note it down on my own and work from that??

I hope my question makes sense. Let me know if it doesn't.

Thanks.

Daytrader85