SPX Credit Spread Trader

[El OchoCinco]

DEC 585 strike is a little dicey since it is just over 15 points OTM which is not an unheard of move with over 30 days to expiration. First, try not to do these on OEX since they are American style, XEO is preferred. ALthough we do not hold these position if they are ITM, you still do not want early assignment as something to consider. Best way to hedge is to look to XEO, since you own OEX and buy some calls at 585 or a call spread at 580 or 585 and look to get out at the next big dip perhaps.

I do not use MACD but always interested in other tools for analysis so if you do use it please feel free to share you experience for timing entries or market swings.

Phil

Quote from ebbarlow:

Dec OEX 585/595 Bear Call Spread with 100 contracts. How would anyone hedge this position if market keeps climbing? Does anyone follow MACD in this forum?

 

[gatorplease]

Did you use Nov or Decs

Quote from optioncoach:

I still feel the pullback is developing but we do have some economic news on Tuesday (PPI) and Wal-mart announcing which could throw a wrench in the works. I only made a small bet with my 1230/1225 debit spread but still see significant overhead resistance as of right now. The S&P and the ES and ER2 all bounced off of overhead resistance lines and are slightly down. Looking for a bigger move lower to perhaps 1225-ish on the S&P as long as no new good news shoots it higher.

I believe it to be more likely than not and threfore did a debit spread but I would not bank a large credit spread position on it.
As for a 1235/1245 bear call spread I think you are well within the adjust or get out zone with the S&P at 1232.

 

[El OchoCinco]

I used NOV because seeing us right near resistance placed the trade expecting the index to bounce back off this week for a short flip. Friday's push and today's movement has it at 1232 but I am looking for a 5 - 7 point drop back to 1225 for a quick profit this week.

Quote from gatorplease:

Did you use Nov or Decs

 

[chrdso]

Quote from optioncoach:

I do not use MACD but always interested in other tools for analysis so if you do use it please feel free to share you experience for timing entries or market swings.

Phil

I do look at the MACD for trend and momentum analysis.

For bullish signals:
1) Look for MACD line (difference between a 12 and 26 exponential moving average) crossing above the signal line (9 day exponential moving average of the MACD. For shorter time frames I think you use the 8-17-9 MACD.)

This kind of crossover occurs often and you have to combine with other indicators to prevent being whipsawed.

2) MACD line crosses over the center line (This means that the 12 day MA is above the 26 day MA) - uptrend.

This is what I saw happen on the XEO recently (in addition to the MACD crossing over signal line). So, I bought the Dec. 580 calls, which have doubled since. I also closed my Nov xeo bear call spread (for a loss. but, overall small credit because of the IC). I bought back for1.60, that spread is now 3.30. So, I would have lost if I held on.

3) Divergence - When the MACD has higher lows, but the price of the index is still falling. This happens less often, but is more reliable and indicates a trend change.

The MACD (2 lines) is a lagging indicator. So, you will not catch the start of a trend. If you use the MACD histogram (difference between the MACD and signal line - I think), you can catch a crossover (histogram above center line ) before it happens. 1) bars getting shorter 2) A divergence between histogram and MACD line (i.e. MACD line falling, but histogram bars becoming shorter- indicates a change in trend).

Also, the higher (longer) the bars the greater the momentum.


Coach (anyone), what technical indicators do you use? How do you use fib. lines?

 

[RichardRimes]

I don't (use a lot of tech ind...I have people ) but very interesting...however if MACD is a lagging indicator you then do not use it for lets say day trading but swing trading?

 

[chrdso]

Quote from DonnaV:

however if MACD is a lagging indicator you then do not use it for lets say day trading but swing trading?

I think it works better for swing trading. Also, instead of the 12/26/9 MACD, I have seen 8/17/9 or even shorter MACD used to catch the trend quicker (more whipsaws though).

 

[riskarb]

Quote from DonnaV:

only because I'm REALLY REALLY bored or is it board...the problem with IB is that they do NOT allow for defined risk trades in an IRA and TOS does...I NEED to find a LIFE...

Actually they do, Donna.

 

[RichardRimes]

Thanks for the correction I was obviously misinformed..read somewhere on a thread they didn't allow naked puts or spreads.

Quote from riskarb:

Actually they do, Donna.

 

[El OchoCinco]

I use trendlines, chart patterns (flags, pennants, wedges, H&S, triangles, etc..), volume, moving averages, MA envelopes, and fib lines (for potential ranges of moves). They all help me analyze the market and determine support and resistance and best strikes to choose. It is of course subjective but very useful when analyzing an index like S&P.

Quote from chrdso:



Coach (anyone), what technical indicators do you use? How do you use fib. lines?

 

[El OchoCinco]

Too much strength in the market as SPX pushes higher so I am closing my 1230 bear put spread since the pulback of resistance is not materializing. My 1275 short strikes in my puts is about 35 points away so with 30 days remaining to expiration I may look into some partial hedges since once we pass 1245, the last great support and a new high in years, more movement higher is very likely. I still see 1260 as a general target but not sure of the time frame exactly. BUt we could see 1260 by DEC expiration if this push continues...

Quote from optioncoach:

I used NOV because seeing us right near resistance placed the trade expecting the index to bounce back off this week for a short flip. Friday's push and today's movement has it at 1232 but I am looking for a 5 - 7 point drop back to 1225 for a quick profit this week.