SPX Credit Spread Trader

rdemyan · Oct 28, 2005

Coach:

I was just reading through some of the ToS chat sessions (July 20, 2005) and in one of them Tom Preston gives an example of adjusting the call side (where the short strike is close to or already breached) of an IC using a butterfly and then rolling the put side up (to get more credit) by selling a put condor. Using these techniques (butterfly adjustment on the side that is in trouble and condor adjustment on the other side to get additional credit), we should be able to reduce the risk of the index moving against us as it currently can when we use two sequential trades to do these adjustments.

Would you agree?

Quote from optioncoach:

I have not done the adjustments as a butterfly but I think that is a really good idea actually. I close out the spread and then open the new lower strike (puts in this case) spread and the interim does leave me open for a whipsaw potential. I will have to look into that next time I adjust (which better be a long ways off lol)

Phil

RichardRimes · Oct 29, 2005

If I may ask (so can understand the trade better) when the market did tank did you buy back the 1170 (nov) put? Then when the mkt went back up buy it back...do you play this type of trade or would you keep it until closer to nov exp? TIA donna

Quote from smilingsynic:

Positive theta, yes, but if the market continues to rally next week, that won't mean much.

Btw, long Dec 1170p (ES); short Nov 1170p, from earlier this week. This position did serve as an adequate hedge Thursday when the market tanked.

El OchoCinco · Oct 29, 2005

I am not sure if I understand. If the market is moving higher and we close the short call spread and the market keeps moving against us we can sell another call spread at higher strikes for more credit as part of the adjustment. Are you referring to where you close the short call spread first and before you can open the new one the market has pulled back thus leaving you with less credit on the new higher strike call spread?

If that is what you are referring to then I have heard of placing a butterfly order to effectively roll up your calls to a higher short strike call spread in one transaction as opposed to two transactions. I have not looked into the details to closely on how it works but will take a look at that ToS archive and see what it says.

Thanks

Phil

Quote from rdemyan:

Coach:

I was just reading through some of the ToS chat sessions (July 20, 2005) and in one of them Tom Preston gives an example of adjusting the call side (where the short strike is close to or already breached) of an IC using a butterfly and then rolling the put side up (to get more credit) by selling a put condor. Using these techniques (butterfly adjustment on the side that is in trouble and condor adjustment on the other side to get additional credit), we should be able to reduce the risk of the index moving against us as it currently can when we use two sequential trades to do these adjustments.

Would you agree?

parisd · Oct 29, 2005

Phil,

If NOV SPX WEEKLY 1185 Put @ $7.60 was ATM at time you posted that message, it looks to be quite expensive, half the price of the same ATM put expiring 3 weeks later, no?

And if continue like this, week after week, it would rapidly pay the long term option after 2 weeks and then generate cash for a week or 2.

Quote from optioncoach:

Decidee to put my money on the line once again for your education and look into the diagonals for possible profitable plays.

Bought NOV SPX 1185 Put @ $14.90

Sold NOV SPX WEEKLY 1185 Put @ $7.60

Cost: $7.30

Scenarios. If market hovers around 1185 or so for the next week then what ever miniscule time value premium there is (seems a lot actually) will fade and the net value of the spread will increase.

If index is above 1185 next week the weekly expires worthless and if the SPX 1185 is worth more than $7.30 I make a profit or can sell another 1185 weekly for more premium.

If index is below 1185 and not too far below then the spread could be worth more than $7.30 with no time value premium in the weekly and I could close for a profit.

THis should be interesting and you can follow my real trade for learning purposes and we can discuss. Only way I can really see it sometimes is with real money and $730 is worth the learning curve.

Phil

rdemyan · Oct 29, 2005

Yes, this is what I'm referring to. A while back, we started a discussion on using butterflies to place the adjustment trade for a credit spread that is in trouble, and I included your initial response to that previous thread in my original post on this thread.

The new wrinkle here is to use a put condor or call condor to adjust the side that is not in trouble (assuming an IC has been placed), under the assumption that we want to roll up or roll down to get some additional credit. That way this rollup or rolldown can also be executed in a single trade.

Quote from optioncoach:

I am not sure if I understand. If the market is moving higher and we close the short call spread and the market keeps moving against us we can sell another call spread at higher strikes for more credit as part of the adjustment. Are you referring to where you close the short call spread first and before you can open the new one the market has pulled back thus leaving you with less credit on the new higher strike call spread?

If that is what you are referring to then I have heard of placing a butterfly order to effectively roll up your calls to a higher short strike call spread in one transaction as opposed to two transactions. I have not looked into the details to closely on how it works but will take a look at that ToS archive and see what it says.

Thanks

Phil

El OchoCinco · Oct 29, 2005

One way to play this hopefully is for me to be able to sell a few weeklies against the long put (well I only have one more weekly availble) and thus significantly reduce the cost of the long NOV SPX and make a significant profit as long as the market does not have a huge price swing. Since we have been range bound between 1170/1200 I think it is a good time for this position.

I will update it on Thursday which is I beleive the last trading day.

Phil

Quote from parisd:

Phil,

If NOV SPX WEEKLY 1185 Put @ $7.60 was ATM at time you posted that message, it looks to be quite expensive, half the price of the same ATM put expiring 3 weeks later, no?

And if continue like this, week after week, it would rapidly pay the long term option after 2 weeks and then generate cash for a week or 2.

daytrader85 · Oct 30, 2005

I can't seem to get SPX weekly quotes. I tried on CBOE website, but when I put the symbol root, JXA, I just get the chain for the SPX regular contract. Can't get them on IB either.

Any other places I could get SPX weekly quotes??

Thanks.

gatorplease · Oct 30, 2005

Use XSP

Quote from daytrader85:

I can't seem to get SPX weekly quotes. I tried on CBOE website, but when I put the symbol root, JXA, I just get the chain for the SPX regular contract. Can't get them on IB either.

Any other places I could get SPX weekly quotes??

Thanks.

ssternlight · Oct 30, 2005

Quote from daytrader85:

I can't seem to get SPX weekly quotes. I tried on CBOE website, but when I put the symbol root, JXA, I just get the chain for the SPX regular contract. Can't get them on IB either.

Any other places I could get SPX weekly quotes??

Thanks.

For IB

1. Enter SPX
2. Select Options
3. Select Nov,strike, call/put,route

There will be two choices remaining. One will be the weekly. It will start with the "J" designation.

daytrader85 · Oct 30, 2005

Quote from ssternlight:

For IB

1. Enter SPX
2. Select Options
3. Select Nov,strike, call/put,route

There will be two choices remaining. One will be the weekly. It will start with the "J" designation.

Thanks for the info. I'm trying to log into IB, but I can't. I know you can't log in on Saturday since they do maintence or something to the system.

Are you having the same problem?