THe main reason is that if there is a move higher, I can roll into a bull call spread or other positions with the SPY (i.e. sell the 128) but I did not want to overlap my positions in the SPX and the partial hedge. When I was looking at the SPY, XSP and SPX, the XSP had no DEC options and the SPY v. SPX were not that far of in price at all. It was simply a personal choice on separating the two and yesterday or the day before when I did it, there was no significant price difference (SPY I splt the b/a, SPX not so easy to do).
SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
I think all of the factors you mentioned are tools you can use to select entries and strikes. Naturally understanding the cycles and time periods of the index and studying the technical indicators are all important considerations in deciding when to enter a spread and at what strikes. I showed you OCT and NOV last year to let you know that even after the market moves higher it can still explode at you so you have ot be careul about setting concrete rules and following them without taking current market conditions into consideration.
The IV skew on calls does effect your premiums and always should be taken into consideration. I would not go so far as to state a rule that calls should be entered into before puts because that ignores what is currently going on in the market even if you wait for an upswing.
I mentioned that year end rallies have left me wary about entering bull call spreads but market movements of late have me reconsidering and that is why I entered into the call spread but still hedged it partially cause that fear of a surge still exists. MY view is that even with a surge, 1275 does not look likely by Thanksgiving or the week after when I would consider geting out of the spread.
AS for January I am not ready to think that far ahead since the market could change its mind and my mind as well long before then.
So I would say keep studying the index for patterns you feel will help you better time entries and strike selection but just remember to stay on top of evnets and be willing to adjust those rules as market conditions warrant.
The IV skew on calls does effect your premiums and always should be taken into consideration. I would not go so far as to state a rule that calls should be entered into before puts because that ignores what is currently going on in the market even if you wait for an upswing.
I mentioned that year end rallies have left me wary about entering bull call spreads but market movements of late have me reconsidering and that is why I entered into the call spread but still hedged it partially cause that fear of a surge still exists. MY view is that even with a surge, 1275 does not look likely by Thanksgiving or the week after when I would consider geting out of the spread.
AS for January I am not ready to think that far ahead since the market could change its mind and my mind as well long before then.
So I would say keep studying the index for patterns you feel will help you better time entries and strike selection but just remember to stay on top of evnets and be willing to adjust those rules as market conditions warrant.
I have to reiterate my lack of familiarity with that index. In general, you should consider rolling up higher to give you more room with the remaining time left to expiration. If you see resistance broken and continued upwards movement, then get out of the way of the train and cut your losses.
Thanks, Coach. I just want to add one more point for now that I forgot to include above.
Anecdotally, I have noticed that it is very hard to get out of a credit spread for less than a $0.10 debit (even when it is pretty far OTM). Even $0.20 can be hard at times.
That's another reason why I'm considering the idea of trying to bring in more premium in the manner mentioned in this post and then getting out before expiration once 75 to 80% of the profit has been achieved. I just have the feeling sometimes that I have considerable margin being tied up for a residual $0.10 on my spreads.
Anecdotally, I have noticed that it is very hard to get out of a credit spread for less than a $0.10 debit (even when it is pretty far OTM). Even $0.20 can be hard at times.
That's another reason why I'm considering the idea of trying to bring in more premium in the manner mentioned in this post and then getting out before expiration once 75 to 80% of the profit has been achieved. I just have the feeling sometimes that I have considerable margin being tied up for a residual $0.10 on my spreads.
This brings up a question in my mind...does it make sense as a general strategy to buy a farther month expiration, and then get out way before expiration? In other words, if you were going to sell a Dec call spread because you think that the SPX was going to stay under 1280 (for example), why not sell a Jan 128 or even 130 instead? Then, get out a few weeks later once theta has done its job. I'm wondering if this would lower risk-- since there's quite a bit of extra premium in the farther calls that will get eaten away even if the index moves slightly higher.
Theta is greater in the next month to expiration and the delta and gamma is worse the more time to expiraiton you give the position. The one time the market really moves against you those further out spreads will really shoot up in value, especially now that you made vega more important to an extent. I would rather manage the risk better in the front months 45 days or less to expiration. That is my preference.
I always caution people about chasing premium because that usually entails chasing more risk. Sure the JAN looks better than the DEC but that is because there is more time for the position to move against you and much more risk. I think you might push it too far going 60 days to expiration and higher. 45 days and under is more managable in my opinion.
Phil
I always caution people about chasing premium because that usually entails chasing more risk. Sure the JAN looks better than the DEC but that is because there is more time for the position to move against you and much more risk. I think you might push it too far going 60 days to expiration and higher. 45 days and under is more managable in my opinion.
Phil
I'm trying a slight variation for DEC.
ENTRY: I sold a 1270/1280 call spread for $1.20 -- risky, but I halved the position size compared to the position size I would have used for a farther out spread. If I have to roll up, I have unused margin to increase the position size.
EXIT: I'm expecting a pullback in the market in the next few days and may close out the 1270/1280 if I can buy back for 0.60 or so, and not necessarily hold to expiration. Overall, I don't think the SPX will break through 1245 and heavy 1253 resistance in a sustainable way in the year end rally.... BWDIK??
I also bought a 1205/1195 put spread for a debit of $2.00 as a downside hedge. Last month, a similar hedge turned into $9 for me...
ENTRY: I sold a 1270/1280 call spread for $1.20 -- risky, but I halved the position size compared to the position size I would have used for a farther out spread. If I have to roll up, I have unused margin to increase the position size.
EXIT: I'm expecting a pullback in the market in the next few days and may close out the 1270/1280 if I can buy back for 0.60 or so, and not necessarily hold to expiration. Overall, I don't think the SPX will break through 1245 and heavy 1253 resistance in a sustainable way in the year end rally.... BWDIK??
I also bought a 1205/1195 put spread for a debit of $2.00 as a downside hedge. Last month, a similar hedge turned into $9 for me...
Just to clarify and be anal, the 1205/1195 put spread is not a hedge because it is not hedging anything. Since you have a bear call spread, the bear put spread is taking a similar directional bet on the pullback. Nothing wrong with it but I do not want you to think of it as a hedge. If the market surges higher you could lose on both. Just want to lay the risk out although I know you know that. Make sure others know too 