SPX Credit Spread Trader

Still a little confused about the butterfly hedge.
Current IC on SPX is 1160/1240.

I feel that I might have to adjust by put side. To roll down from 1160/1150 put spread to a 1150/1140, it would cost me $2.20. Assuming that it would maybe cost a little bit more or around that price when the SPX hits my adjustment level of 1160, I want to lower my cost by opening butterfly hedges.

I looked at:
SPY = 118.66
BTO 121 PUT
STO 119 Put (2 contracts)
BTO 117 Put
Currently there is a debit of $0.55.

If SPY contines to go down further than 117, I would have already adjusted my SPX by then since SPX would be lower than 1170 and threatening my short strike. I know that the most I would lose on the SPY hedge would be $0.55 and would be the cost of insurance. But, what would be my MAX PROFIT and at what price, for the SPY hedge??

I hope that make sense.

Thanks.
 
Quote from daytrader85:

Still a little confused about the butterfly hedge.
Current IC on SPX is 1160/1240.

I feel that I might have to adjust by put side. To roll down from 1160/1150 put spread to a 1150/1140, it would cost me $2.20. Assuming that it would maybe cost a little bit more or around that price when the SPX hits my adjustment level of 1160, I want to lower my cost by opening butterfly hedges.

I looked at:
SPY = 118.66
BTO 121 PUT
STO 119 Put (2 contracts)
BTO 117 Put
Currently there is a debit of $0.55.

If SPY contines to go down further than 117, I would have already adjusted my SPX by then since SPX would be lower than 1170 and threatening my short strike. I know that the most I would lose on the SPY hedge would be $0.55 and would be the cost of insurance. But, what would be my MAX PROFIT and at what price, for the SPY hedge??

I hope that make sense.

Thanks.
More...

I think a good discussion of hedges for that trade is in order now, with SPX at 1185. Warning flags are up, if only slightly.
 
First, with any butterfly the max profit is the difference between the strikes minus the net debit. But that max profit is only achieved if the underlying is at the center strikes at expiration. Otherwise it will be less due to time value premium in the middle short strikes.

If using a butterfly to hedge I think it is better to start near the money for the upper wing. Your example is at 121 which means you are already starting with a deep ITM strike which costs more. Perhaps starting with a 119 or 118 strike and using 116 or 115 as a body. This gives you a wider profit zone and perhaps cheaper cost then starting at 121.

Now remember that the butterfly works well going towards expiration but with 3 weeks left you might not see much profit on a down move due to the time value premium and deltas of the middle short strikes. The butterfly might only budge slightly and from recent experience I believe this factor makes is less desireable with more time to expiration.

If you truly fear a strong move lower from the 1185 mark, then look at bear put spreads using the XSP. The SPY costs slightly more for the same strikes as the XSP and the XSP matches the SPX.

SO first look into the XSP (Mini-SPX).

Second look first at bear put spreads for a better hedge with 3 weeks to expiration and place your long strike ATM or slightly OTM to start.

If the cost seems to prohibitive then look at the XPS FLYs using an upper wing ATM or slightlty OTM and a body at or near your short strikes.

I am a little tied up so I cannot check the prices of these different scenarios but work through them and see which one seems the best bang for the buck.

Phil


Quote from daytrader85:

Still a little confused about the butterfly hedge.
Current IC on SPX is 1160/1240.

I feel that I might have to adjust by put side. To roll down from 1160/1150 put spread to a 1150/1140, it would cost me $2.20. Assuming that it would maybe cost a little bit more or around that price when the SPX hits my adjustment level of 1160, I want to lower my cost by opening butterfly hedges.

I looked at:
SPY = 118.66
BTO 121 PUT
STO 119 Put (2 contracts)
BTO 117 Put
Currently there is a debit of $0.55.

If SPY contines to go down further than 117, I would have already adjusted my SPX by then since SPX would be lower than 1170 and threatening my short strike. I know that the most I would lose on the SPY hedge would be $0.55 and would be the cost of insurance. But, what would be my MAX PROFIT and at what price, for the SPY hedge??

I hope that make sense.

Thanks.
More...
 
Quote from Dr. Zhivodka:

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
More...

Sorry but I don't agree!!! (Hee, hee)
 
I just couldn't resist the premiums on the bull put side. Got the following filled with ToS. Called to 'goose' the trade and it worked again:

1085/1100 Nov SPX filled at $0.60

Interesting thing happened. I called to goose it, and got a call back saying it was filled and would probably be awhile before it showed as being filled on my screen as they were pretty busy in the pit. After 10 minutes no filled showed up with the SPX going back up. Called ToS again and talked to the same guy. He called back down and I was filled within a minute. Apparantly, the guys in the pit weren't looking at the spreads when they said they filled an order at $0.60. They had filled somebody else. However, after the second call, they filled my order even though it was now above the midpoint.

I'm gonna move my entire OX account over to ToS; the customer service is far beyond what I ever got at OX.

I'm maxed out now for November. If we could just get some decent call premiums, so I could complete the IC......
 
I wonder how all those guys who were so vocally in opposition to credit spreads are doing with their call debit spreads they bought. I'm thinking PAIN!

I'll stick to what I know. Like to learn more. Like how to have done a debit put play.
 
Quote from optioncoach:

First, with any butterfly the max profit is the difference between the strikes minus the net debit. But that max profit is only achieved if the underlying is at the center strikes at expiration. Otherwise it will be less due to time value premium in the middle short strikes.

If using a butterfly to hedge I think it is better to start near the money for the upper wing. Your example is at 121 which means you are already starting with a deep ITM strike which costs more. Perhaps starting with a 119 or 118 strike and using 116 or 115 as a body. This gives you a wider profit zone and perhaps cheaper cost then starting at 121.

Now remember that the butterfly works well going towards expiration but with 3 weeks left you might not see much profit on a down move due to the time value premium and deltas of the middle short strikes. The butterfly might only budge slightly and from recent experience I believe this factor makes is less desireable with more time to expiration.

If you truly fear a strong move lower from the 1185 mark, then look at bear put spreads using the XSP. The SPY costs slightly more for the same strikes as the XSP and the XSP matches the SPX.

SO first look into the XSP (Mini-SPX).

Second look first at bear put spreads for a better hedge with 3 weeks to expiration and place your long strike ATM or slightly OTM to start.

If the cost seems to prohibitive then look at the XPS FLYs using an upper wing ATM or slightlty OTM and a body at or near your short strikes.

I am a little tied up so I cannot check the prices of these different scenarios but work through them and see which one seems the best bang for the buck.

Phil
More...

Thanks so much for the explanation. I will definately be looking into it, if we go lower.
 
I was trying to get filled today but I couldn't. I am not in a hurry. NDX and SPX still have to give some grounds. SPX should test it's October Low of 1168. Hopefuly I will get filled by then.

Stochastic and RSI have some room to go down to. The market will bounce not before NDX and SPX are completely oversold. 2 days ago they were way overbought and I mentioned it but I didn't have the guts to buy the puts then.

Next time hopefuly.
 
Good grief.....how blind can you be?

You obviously don't watch volatilities do you?

Selling prem 40% under what it's worth over time will make you bankrupt. Buying prem at a 40% discount is smart trading and over time will make you rich. FYI...yesterday morning the vols came back in line resulting in nice profits for a two day trade.

Market direction is but one of many many considerations when trading options. But I'll let you figure out why. I've said enough (too much) in this thread already.

It always amazes me how the least experienced are usually the most lippy.




Quote from gatorplease:

I wonder how all those guys who were so vocally in opposition to credit spreads are doing with their call debit spreads they bought. I'm thinking PAIN!

I'll stick to what I know. Like to learn more. Like how to have done a debit put play.
More...
 
One way to help you get over the fear of committment to what your signals is telling you is to do it first in a very small way. For example, if your indicators are telling you we are in an overbought situation and you just cannot pull the trigger on long put spreads, train yourself by just buying 1. The risk is minimal so no harm if you are wrong and if you are right you will make a profit.

The profit will not be major but if you do this a few times, then you will slowly build the confidence to trust your instincts and make trades. if your analysis is consistently wrong, you will have risked very little money and have real trades to analyze to improve upon your analysis and find mistakes. if you just take mental notes you will not be true to it and not learn much from it. However if you even put $50 in one spread, you will be more focused on it and therefore test your abilities to trade off your anaysis.

SO next time you feel the analysis strongly giving you such signals, commit with one contract or spread to test it so that you get realistic results. If you have noet positive results, you will have more confidence to follow your analysis and apply it to trades. That confidence is how traders make money on their analysis.

Phil

Quote from piccon:

I was trying to get filled today but I couldn't. I am not in a hurry. NDX and SPX still have to give some grounds. SPX should test it's October Low of 1168. Hopefuly I will get filled by then.

Stochastic and RSI have some room to go down to. The market will bounce not before NDX and SPX are completely oversold. 2 days ago they were way overbought and I mentioned it but I didn't have the guts to buy the puts then.

Next time hopefuly.
More...
 
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