SPX Credit Spread Trader

Quote from optioncoach:

Treat the SET like a skunk.... you do not want to get too close to it. I think JULY was the only month where let some positions go to expiration where I was even 15 points close. Other than that, treat it like a skunk.
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I had a 1240/1250 bear call spread which was part of an Iron Condor. I had closed the short 1240 strike yesterday, but held onto the long 1250. Since SET, according to CBOE.com, is 1254.85, that would mean that my long option could have been exercised. So, I would recieve proceeds of $485 ((1254.85-1250)*100). Right??

Thanks.
 
SPX or XEO

Today has shed light! As of late, premium in both indexes appear to be relatively equal relative to risk.... that said....

With the SPX's SET price fluctuating up to 10+ points.... the expected probability of profit on the SPX compared to the XEO... changes drastically.... in fact, significantly.

This said... I find it significantly more prudent to trade the XEO until further changes in premium warrant.

Phil... may I suggest we lean (slant... bend... skew) this thread of credit spreads towards the XEO? Or... open our discussion to include both indexes?

Your thoughts?

Murray
 
It would be interesting to have both indexes included in this thread. OEX, XEO don't move as fast as SPX anyway.


Quote from Sailing:

SPX or XEO

Today has shed light! As of late, premium in both indexes appear to be relatively equal relative to risk.... that said....

With the SPX's SET price fluctuating up to 10+ points.... the expected probability of profit on the SPX compared to the XEO... changes drastically.... in fact, significantly.

This said... I find it significantly more prudent to trade the XEO until further changes in premium warrant.

Phil... may I suggest we lean (slant... bend... skew) this thread of credit spreads towards the XEO? Or... open our discussion to include both indexes?

Your thoughts?

Murray
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Coach:

Here's an example where it would be so helpful if we had a central place to store files. Instead of having to post or do research I could go to the central file area and look at the document titled "Index characteristics".

That way I could refresh my memory as to whether it's the OEX or XEO that is European style. Also refresh my memory about the differences between the XSP and the SPY.

Also, having your current positions and monthly spreadsheets of the results in the central file area would be very helpful

As someone posted earlier, this is a great and popular journal as evidenced by the number of pages. But that sheer number is making it very difficult to find information that I know we've discussed before.

So I thought I would mention it again. Thanks for listening to this broken record :)



Quote from Sailing:

SPX or XEO

Today has shed light! As of late, premium in both indexes appear to be relatively equal relative to risk.... that said....

With the SPX's SET price fluctuating up to 10+ points.... the expected probability of profit on the SPX compared to the XEO... changes drastically.... in fact, significantly.

This said... I find it significantly more prudent to trade the XEO until further changes in premium warrant.

Phil... may I suggest we lean (slant... bend... skew) this thread of credit spreads towards the XEO? Or... open our discussion to include both indexes?

Your thoughts?

Murray
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Quote from andysmith:

IVTrader,

I exactly follow what you are suggesting and have looked at this strategy myself. Your total margin is $40k, your total credit is $20k, and your max loss is $20k. OK, so far so good.

But under the surface there is a big difference between what you are suggesting and Phil's method.

With Phil's method, you use far OTM spreads and adjust the spread when the index gets close to the short strike.

With your method, you take the ThinkOrSwim approach to trading, which is to leave the trade alone and rely in the long run, on probabilities. Even if the index crosses your short strike, leave it alone. Never adjust, let the probs work for you each month. For example: if the prob of expiring is 50% and the prob of touching is 60%, then you will most certainly lose in the long run if you adjust your condor every time it creeps up on your short strikes. Think about it and it'll make sense to you.
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I am not familiar with Think or Phil's method , maybe its very good and in this case one should not listen to other poster's ideas , just keep executing existing strategy. BTW , if market crosses my short strike (or maybe even the long strike) the second entry with non proportional amount of puts vs. call IS an adjustment to first position.
Andy , I am not trying to convince anyone here , its whatever works for you is matter.
Good luck all
 
Thanks guys for the accolades but I have to admit I didn't close the 1250 because I was on a computer at my step-daughters house (I watch her baby on wed and thurs) and it doesn't let me do spreads and of course I won't call the help desk:p so just closed my short!!! (I'm bringing my laptop for now on) I was as shocked as anyone at the turnout but I did learn a very valuable lesson....if you have a 5 pt spread and the short is in danger cover that and let the long ride..... I owe ALL of you guys a lot however anyone who knows me will tell you NEVER follow Donna down a slope or up a mountain:D

Quote from Sailing:

Phil,

I had closed all my SPX positions on Thursday, but one. 1250/1260.

Today was an expensive learning experience for many.... me included.

I went back and looked at the Friday opens vs. the SET prices. It was mentioned in an earlier post how the two can be quite a bit different. The SET tends to be higher than the open of Friday... significantly higher with respect to the ATR for the SPX.

We're happy to have been able to support Donna on this learning adventure. Hopefully she'll return the favor someday.

Murray
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:p
 
Thanks for the comments and encouragement to jump in and learn. I will not give up. Glad you heeded Coach warning about end of the year uptrend and got out of the 1240/1250 Nov Bear Call. I was hoping his predicted drop to 1225 would last a little longer than it did. I will, in the future, keep the image of a Skunk in mind and stay away from my short strikes.
Thanks again, Jack
PS: I did have 2 bull put spreads which eases the pain, albeit too little.


Quote from rdemyan:

Jack:

Sorry you had to take such a big loss. I've been there myself and being part of a trading group like this can really help you move forward smarter.

There were a couple of us, including myself, who had 1240/1250 Nov bear calls on. Coach did warn us that we were fighting the typical end of the year uptrend of the market. I got out after it was clear to me that the market was going up (I didn't adjust because I believed that adjusting wouldn't help which to me means that the SPX could bust through my short with no end in sight so better to get out). I got out fairly early so my profit was down for November but I was still profitable to the tune of 2.5% of committed margein.

This loss you took will put risk management in the forefront, which is what Coach advocates. But most likely in several months you'll have it back. So, if I may suggest, join in with us in the forum here. Post trades that you're considering and I'm sure you'll get some feedback. I would not, though, blindly follow others with their trades, but by all means consider what others are doing and solicit advice. This, IMHO, will increase the odds substantially that you'll be more profitable and even more importantly minimize the losses you'll take.

Good luck!
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Quote from ryank:

The SET today keeps making me shake my head. From Thursday open to the SET today, you are looking at a roughly 24 hour time frame ad nincrease of roughly 22 points. Enough to make your head spin!

ryan
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This is why I never trade the SPX unless I'm planning on getting out prior to
expiration. Settlement is a complete crapshoot. I personally prefer the OEX
or the XEO. At least I know where it's going to settle as the market closes!
 
Quote from IV_Trader:

1. Why would the max loss of 20k(and never a dollar more) require 40k in margins ?
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Phil is correct. The margin requirement is 40k. However, you can use the 20k of cash
you received from the credit to fulfill part of the margin requirement. So, you really
need only 20K of pre-trade cash, to meet the 40K margin requirement. Does that
make sense?
 
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