SPX Credit Spread Trader

You bring up a good point of concern for November. But the call spreads in general are not so much a problem because I do not expect NOV to be a month of 10% positive returns. THe problem is choosing the best strikes and right now the deep OTM strikes have little or no premium. 1240 is as far as you can g oand still get good premiums. I would feel more comfortable starting at 1260 or higher. Also, the current spreads cover half of OCT and half of NOV so selling the DEC spreads in NOV might present more upside concern. I think with call spreads you need to go further OTM due to the IV skew working against you. Thus I am not jumping into call spreads yet and today's surge pretty much ruled out a put spread entry lol. Hopefully if we get a pull back I can grab some good 1110/1120 put spreads.

Should be interesting 5 weeks coming up.

Phil

Quote from keafan:

You have to go back to the early 90's to find novembers that equaled or undercut the low of october. many times november has been a strong trend up month. and you guys are selling november bear call spreads in october????? i was thinking the same thing about bull put spreads you guys were putting on for october which ended up causing you so much stress. seems as though some simple seasonality studies would greatly increase your return while reducing your risk.

october is fiscal year end for many many many mutual funds and hedge funds in order for gains/losses to be counted up and distributions to shareholders/partners can be made and bonuses paid to the managers/traders. just like the seasonal dip mid december when individuals sell dogs the october dip is when institutions sell. their year begins in november and they have a whole year to let things ride so u tend to get a lot of money put to work. maybe this year will be like the early 90's but why sell a call spread just as u r going into one of the strongest times of the year?

just a heads up. i wish u guys continued success with one of the best threads going on ET.
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Working Title: "Opportunistic verses Systematic, or Being prudent by being patient."


I personally wouldn't touch any Novi call credits any this point no matter how far OTM...maybe call debits (disclosure: I have lots of call debit spreads in here).

If you have call credit spreads you'd be wise to solve for your risk at various points higher and begin to buy in some ES futs.....or whatever your hedge may be. I personally like the futs but that's an individual choice.

The market has taken every solid punch thrown and it has shrugged it off.

Beyond any NEW information that may trigger any discontinuity....I'd very wary of any -delta in here.

Seller beware.
 
Quote from optioncoach:

You bring up a good point of concern for November. But the call spreads in general are not so much a problem because I do not expect NOV to be a month of 10% positive returns. THe problem is choosing the best strikes and right now the deep OTM strikes have little or no premium. 1240 is as far as you can g oand still get good premiums. I would feel more comfortable starting at 1260 or higher. Also, the current spreads cover half of OCT and half of NOV so selling the DEC spreads in NOV might present more upside concern. I think with call spreads you need to go further OTM due to the IV skew working against you. Thus I am not jumping into call spreads yet and today's surge pretty much ruled out a put spread entry lol. Hopefully if we get a pull back I can grab some good 1110/1120 put spreads.

Should be interesting 5 weeks coming up.

Phil
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Many were saying the same thing in October 1998. By November expiration that year, many were "blown away" at what strikes came into play.
 
Just to clarify...I BOUGHT nov 1250 at .55 have NOT sold the spread YET....


Quote from keafan:

You have to go back to the early 90's to find novembers that equaled or undercut the low of october. many times november has been a strong trend up month. and you guys are selling november bear call spreads in october????? i was thinking the same thing about bull put spreads you guys were putting on for october which ended up causing you so much stress. seems as though some simple seasonality studies would greatly increase your return while reducing your risk.

october is fiscal year end for many many many mutual funds and hedge funds in order for gains/losses to be counted up and distributions to shareholders/partners can be made and bonuses paid to the managers/traders. just like the seasonal dip mid december when individuals sell dogs the october dip is when institutions sell. their year begins in november and they have a whole year to let things ride so u tend to get a lot of money put to work. maybe this year will be like the early 90's but why sell a call spread just as u r going into one of the strongest times of the year?

just a heads up. i wish u guys continued success with one of the best threads going on ET.
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Sorry... typo-graphical brain fart.

You are correct, current position:

1130/1140 Bull Put - $1.30
1240/1250 Bear Call - $0.70

Total Credit = $2.00

Comments, suggestions, and concerns were noted and recorded into my trading plan. I keep a working word file of all trades with comments... similar to a daily personal diary. It is amazing how you feel one day... and then read about it a week later... hardly feeling the same.

Continued support, suggestions, and comments appreciated as this market moves for the next 5 weeks between 1140 & 1240.
Beyond that.... just send money.

Sail On, Murray

~ ~ _/) ~
 
OC said "Thus I am not jumping into call spreads yet". i was talking more to some of the eager learners following your strat... some seem to be jumping up and down excited about the new positions they have put on. just throwing some more caution out there as u had already just done. u have quite rightly gone out of your way to make a point about being cautious on the short call side right now. keep up the good work OC.
 
The Vols on the Novi calls are 10-40% below theoretical.

Those who are selling into this already are likely (just from a vega risk standpoint) to make a lot of these call buyer's rich before Novi expiration
 
keafan, Doc, Jack:

Thanks for the heads up and advice. You are right. All you have to do is look at last Nov (I made a ton of money that month buying not selling).

I know one of my personal weaknesses is this idea, which I have trouble shaking, that I have to be in the market every month and that I want to target a certain amount every month. To be clear, Coach does not advocate this, it's something I have to work through.

On the other hand, my decision to put on a bear call spread comes after reading commentary from some analysts that I follow (paid subscriptions). They don't expect November to really be much of an up month if up at all. Of course, they do change their predictions at least once a week, esp. lately. So, we'll have to see.

I think I probably will take the advice of putting on some SPY hedges if we break through 1210 or so.

Thanks for tempering the exuberance with doses of historical reality.

Quote from keafan:

You have to go back to the early 90's to find novembers that equaled or undercut the low of october. many times november has been a strong trend up month. and you guys are selling november bear call spreads in october????? i was thinking the same thing about bull put spreads you guys were putting on for october which ended up causing you so much stress. seems as though some simple seasonality studies would greatly increase your return while reducing your risk.

october is fiscal year end for many many many mutual funds and hedge funds in order for gains/losses to be counted up and distributions to shareholders/partners can be made and bonuses paid to the managers/traders. just like the seasonal dip mid december when individuals sell dogs the october dip is when institutions sell. their year begins in november and they have a whole year to let things ride so u tend to get a lot of money put to work. maybe this year will be like the early 90's but why sell a call spread just as u r going into one of the strongest times of the year?

just a heads up. i wish u guys continued success with one of the best threads going on ET.
More...
 
The idea is that even if the market goes no where during Novi those who've sold into this already sold for prices(prems) WAAAAYYYY under the "fair value." Meaning you got "short changed," if prem's revert to the mean.

Now if Vols increase or if the actual runs higher in here then those cheap vols you sold are gonna get fat, phat and fugly...fast. In which case the buyers of cheap vol (me) are gonna be happy.

One does one a disservice by not seeing the whole picture. The problem is ....your competition does.


Quote from rdemyan:

keafan, Doc, Jack:

Thanks for the heads up and advice. You are right. All you have to do is look at last Nov (I made a ton of money that month buying not selling).

I know one of my personal weaknesses is this idea, which I have trouble shaking, that I have to be in the market every month and that I want to target a certain amount every month. To be clear, Coach does not advocate this, it's something I have to work through.

On the other hand, my decision to put on a bear call spread comes after reading commentary from some analysts that I follow (paid subscriptions). They don't expect November to really be much of an up month if up at all. Of course, they do change their predictions at least once a week, esp. lately. So, we'll have to see.

I think I probably will take the advice of putting on some SPY hedges if we break through 1210 or so.

Thanks for tempering the exuberance with doses of historical reality.
More...
 
Quote from DonnaV:

Zhivodka...I have no idea WHO my competition is...no one controls THE market..but my best guess is NO ONE does....
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Your competition is the steamroller bearing down on you when you're picking up those nickels. As Dr. Z suggested; there is huge edge-loss in selling those otm call spreads. Some of the cheapest gamma I've ever seen, therefore the most leveraged to gamma^2. Lov vols = cheap gamma. OTM = cheap gamma. Negative call skew = cheap gamma.

If the vol smile was flat you'd get nearly TWICE as much for your call spreads.

If you guys/gals are going to continue down this road... make every attempt to sell near-atm premium, or consider trading atm/otm condors and flies. If you continue to be led down the primrose path, then at the very least buy some term-structure vega in calendars.

No trade beats the expectancy argument[execution-edge], but as I've stated numerous times -- it's best to be long upside and short downside gamma -- long otm/short atm. This naturally structures the book in long flies and condors, either natural or synthetic[irons].

Your competition doesn't control the market; they know that the gamma you're selling them can't get any cheaper, therein lies their edge.

I've said my peace and I won't clutter this thread any further -- good luck.
 
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