SPX Credit Spread Trader

Quote from Dr. Zhivodka:

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.
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You are right, market direction is but one thing to consider. I've been a bit out of the loop the last several days. Off and on I look at buying the spreads when I think I have a good feel for which way the market is going short term (and I'm very bad at it). When you posted that you were buying call spreads because they were 10%-40% undervalued I checked and you were pretty much right on the money. Can you tell me what spreads you made money on (I didn't keep track of what spreads I was looking at, I just did a quick check after reading your post the other day)?

ryan
 
Thanks Coach.

Next time I will commit at least one contract.


Quote from optioncoach:

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
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Honestly you can blow up your account trading anything, stocks, bonds, options, futures, forex, etc... It is never the strategy it is always the risk management. Stock funds blew up in 2001, Long-term Capital Management had huge leveraged bond spread trades that helped to blow them up, etc....

As long as you know and understand the risk of what you are trading, do not put all your eggs in one basket, practice good risk management, take small losses before they become big losses, then you can make money over the long-run.

if you just read Market Wizards you will see bond, futures and stock traders all following the same risk management approaches even though the security or market is different.

The best investors are the ones who manage the risk the best because a great stock/trend/directional picker with poor risk management will always blow up their account.

Phil


Quote from skanan:

http://www.gladwell.com/2002/2002_04_29_a_blowingup.htm

This guy blew up the whole account because of selling naked OTM put on SPX with high probability of winning but low return.

The risk is real.

We are doing something different. At least we are not naked and did not commit the whole account into this.
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Howdy Coach

I don't begin to have any idea how the MM's think or what is involved in doing their job but I will briefly relate my experience today since we were trying to fill the same spread I believe.

At 10:22 am ET with SPX @ 1189.10 entered the 1115/1100 put spread on TOS for .65 credit which was the mid at that time and went to work. My thinking was if the market went down enough I might get a fill... Got home just after 3 pm ...SPX @ 1185.50.., my spread had not filled which was fine but mid was bouncing between .55 and .60 so as SPX dropped and risk in the spread increased the premium was dropping. So I pull up the 1110/ 1095 spread and the mid is bouncing between .65 and .70 ... entered my order @ .55 got filled in less then 30 sec this was at 3:14 pm ... I left the original spread on out of curiosity and watched it ... saw the mid go as high as .85 never filled.. nothing unusual there they have turned down .20 many times from me but it did seem strange they filled a farther out of the money spread for less ______ ( not sure what you call the money you have to shave off mid to get fills )

On a side note on 10-18-05 with SPX @ 1180.10 I got the 1115/1100 filled at .95 credit so I guess Theta hasnt gone off looking for a new sugar daddy yet .

Thank you for all the time and effort you put into this journal it is appreciated.

Feydnaway
Quote from optioncoach:

I believe the market maker is adjusting the b/a spread to your limit order to try and get it filled. By lowering the ask, they are looking for someone to take the ask so they can fill your order and make the $0.50 spread. if yours is the only order placed, then it is not uncommon for the b/a spread to change in response to your order. Many times it helps you get a better fill since it narrows the spread and may bring in other participants which will help you get filled.

Phi
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:p
 
Market makers and women, 2 people whose behavior I will never fully understand. All I could do is put my limit order in and watch the clock lol.

Phil
 
Men were never meant to understand women

Quote from optioncoach:

Market makers and women, 2 people whose behavior I will never fully understand. All I could do is put my limit order in and watch the clock lol.

Phil
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Hi all, anyone contemplating early adjustments for tomorrow?

S&P futures already near -3.00 and Nasd -8.00 for mornings open.

My closest spread to 1178 spx is Nov bull put at 1130/1140. Another nasty day or two like today and there is a good chance I may soil my underwear!

This early in option cycle, being this close to the underlying is worrisome. I hate to say this, but those of you who got those 1240 bear calls are looking pretty good right now.

And Where is this 4th qtr rally?? If there is a rally, we'll be lucky if it rallies to 1200 with the hole the mkt's digging for itself.

Take care,

Jerry :confused:
 
Hi Jerry:

I have the 1130/1140 as well, but I think it's too early to get really worried, although we do have to keep our eye on the situation.

Coach has a position that's closer to being a problem, I think around 1150/1160. We can watch and learn from what he does as he will in almost all cases have to adjust or do something before we will have to (excluding a black swan event). Hopefully, the market will move back up a bit (although not enough to threaten my 1240/1250) and we'll all be okay.

Good luck to you.


Quote from Opspread:

Hi all, anyone contemplating early adjustments for tomorrow?

S&P futures already near -3.00 and Nasd -8.00 for mornings open.

My closest spread to 1178 spx is Nov bull put at 1130/1140. Another nasty day or two like today and there is a good chance I may soil my underwear!

This early in option cycle, being this close to the underlying is worrisome. I hate to say this, but those of you who got those 1240 bear calls are looking pretty good right now.

And Where is this 4th qtr rally?? If there is a rally, we'll be lucky if it rallies to 1200 with the hole the mkt's digging for itself.

Take care,

Jerry :confused:
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